For this assignment, you will research and compare international and U.S. accounting standards. This will enable you to see
how the different reporting methods affect business and how product costs are affected by international business.
The learning objectives of this report are as follows:
- Compare and contrast basic U.S. and international financial accounting standards.
- Explain how key international factors affect business reporting.
- Identify key compliance and regulatory requirements.
Using the Unit IV Research Report Template, prepare a four- to five-page written report with at least three scholarly sources covering the items listed below.
Part 1: Select financial statements for two related (e.g., computer manufacturers, pharmaceutical companies, cell phone
companies, etc.) businesses; one that uses U.S. accounting reporting and the other that uses international accounting
reporting. Identify the following items:
Provide the name, location, and accounting standards used for each business.
Compare and contrast three major differences you see in the way the financial data is presented on the financial
statements.
Identify which set of financial statements you think is the easiest to understand and provides you with the most accurate cost
data as a manager. (Do not forget to look at the notes to the financial statements also.)
Part 2: Analyze and discuss three international factors you think would affect the cost of the products made at the companies you selected and why.
Part 3: Discuss any compliance and/or regulatory issues you think would be involved in the companies you have selected as they relate to the cost of the products made. For example, are there strict regulations on product pricing, tariffs imposed on raw materials needed to make the products, or strict regulations on the wages paid to workers?
Be sure to use APA formatting throughout and reach out to the Writing Center or the Library for assistance with research, writing, and formatting. Include at least two of your scholarly resources
Introduction
In today’s globalized economy, businesses operate across borders and engage in international trade. As a result, accounting standards and practices have become a crucial aspect of financial reporting. This essay aims to compare and contrast basic U.S. accounting standards with international financial accounting standards, exploring how these standards affect business reporting and product costs. Through the analysis of two related businesses, one utilizing U.S. accounting reporting and the other using international accounting reporting, we will identify major differences in financial data presentation and evaluate the ease of understanding and accuracy of cost data. Additionally, we will discuss three international factors affecting product costs and compliance and regulatory issues that impact cost management.
Part 1: Comparison of U.S. and International Financial Accounting Standards
Businesses selected:
Business 1: XYZ Inc., located in the United States, follows U.S. Generally Accepted Accounting Principles (GAAP).
Business 2: ABC Ltd., located in Europe, follows International Financial Reporting Standards (IFRS).
Major differences in financial data presentation:
Format: U.S. GAAP typically presents financial statements in a horizontal format, whereas IFRS tends to use a vertical format.
Treatment of inventory: U.S. GAAP allows for different inventory valuation methods such as LIFO (Last-In, First-Out) and FIFO (First-In, First-Out), whereas IFRS generally employs the FIFO method.
Revenue recognition: U.S. GAAP uses specific criteria for revenue recognition, such as the completion of earnings process or persuasive evidence of an arrangement, while IFRS provides more principles-based guidelines.
Evaluation of ease of understanding and accuracy of cost data: Based on the analysis of financial statements and accompanying notes, I find that the U.S. accounting reporting system provides more clarity and transparency in presenting financial data. The use of standardized formats and specific criteria for revenue recognition enhances the ease of understanding for managers. Moreover, the availability of various inventory valuation methods under U.S. GAAP allows for more accurate cost data representation, enabling managers to make informed decisions.
Part 2: International Factors Affecting Product Costs
Exchange rates: Fluctuations in exchange rates can significantly impact product costs for businesses operating internationally. A strong domestic currency relative to foreign currencies may increase the cost of imported raw materials or components, leading to higher production costs.
Tariffs and trade barriers: Trade policies such as tariffs, quotas, or embargoes imposed by countries can affect the cost of products. Higher tariffs on imported goods or raw materials increase production costs, making the final products more expensive for consumers.
Labor costs: The variation in labor costs across different countries can influence product costs. Businesses operating in countries with lower labor costs might enjoy a competitive advantage by producing goods at a lower cost compared to businesses operating in countries with higher labor costs.
Part 3: Compliance and Regulatory Issues Impacting Cost Management
Product pricing regulations: Some countries may have strict regulations on product pricing to protect consumers or maintain market stability. Compliance with these regulations could impact cost management strategies, potentially limiting pricing flexibility for businesses.
Tariffs on raw materials: Countries may impose tariffs on specific raw materials used in production processes. These tariffs increase the cost of acquiring raw materials, directly affecting product costs and profitability.
Labor regulations: Countries often have labor regulations that dictate minimum wages or working hour limits. Compliance with these regulations may increase labor costs for businesses, impacting overall cost management strategies.
Conclusion
In conclusion,
understanding the differences between U.S. accounting standards and international financial accounting standards is crucial for businesses engaged in international trade. While both systems have their unique characteristics, U.S. GAAP offers greater clarity and accuracy in financial data presentation for managers. International factors such as exchange rates, trade barriers, and labor costs can significantly impact product costs for businesses operating globally. Additionally, compliance with regulations on product pricing, tariffs on raw materials, and labor regulations poses challenges to cost management strategies. By recognizing these differences and factors, businesses can navigate the complexities of international accounting standards and effectively manage product costs in a global marketplace.