Case 1 1 Discussion
Case 1-1 Discussion
After reading Case 1-1, it seems that Besserbrau AG has many international accounting issues to confront. First, Besserbrau AG imports hops from a Czech Republic company. Doing this brings up a number of issues relating to international accounting. Since Besserbrau AG is a German based company and uses the euro, the exchange rate is an accounting issue for Besserbrau AG. The Czech Republic uses the Koruna as their currency so when a purchasing transaction occurs between these two companies, Besserbrau must translate their purchases into euros. Also, if the value of the Koruna were to increase and make the amount owed to the Czech Republic company for hops purchased to increase, Besserbrau could take preventive steps to help manage this event. These techniques are called hedges. In the book, it describes two poplar ways a company can hedge foreign exchange risk. One is the purchase of a foreign currency option which gives the owner the right to sell foreign currency at a predetermined exchange rate (strike price). Another way is through a foreign currency forward contract. Most of these issues will also have to be confronted with their expansion into China. Not only will they have to take into account their foreign direct investment in China but also converting China’s GAAP for their China subsidiary (BB Pijio) into German GAAP for the parent company (Besserbrau AG). Besserbrau AG will have to convert the sales made by BB Pijio and make it convertible into German GAAP for required reporting purposes. Last but not least, Besserbrau AG will have to deal with the issue of cross listing since they are listed on both the Frankfurt and London Stock Exchange. Being on both stock exchange list, Besserbrau AG must be in compliance with both in order to finance business operations and especially their new FDI (Brewery) in London.
After reading Case 1-1, it seems that Besserbrau AG has many international accounting issues to confront. First, Besserbrau AG imports hops from a Czech Republic company. Doing this brings up a number of issues relating to international accounting. Since Besserbrau AG is a German based company and uses the euro, the exchange rate is an accounting issue for Besserbrau AG. The Czech Republic uses the Koruna as their currency so when a purchasing transaction occurs between these two companies, Besserbrau must translate their purchases into euros. Also, if the value of the Koruna were to increase and make the amount owed to the Czech Republic company for hops purchased to increase, Besserbrau could take preventive steps to help manage this event. These techniques are called hedges. In the book, it describes two poplar ways a company can hedge foreign exchange risk. One is the purchase of a foreign currency option which gives the owner the right to sell foreign currency at a predetermined exchange rate (strike price). Another way is through a foreign currency forward contract. Most of these issues will also have to be confronted with their expansion into China. Not only will they have to take into account their foreign direct investment in China but also converting China’s GAAP for their China subsidiary (BB Pijio) into German GAAP for the parent company (Besserbrau AG). Besserbrau AG will have to convert the sales made by BB Pijio and make it convertible into German GAAP for required reporting purposes. Last but not least, Besserbrau AG will have to deal with the issue of cross listing since they are listed on both the Frankfurt and London Stock Exchange. Being on both stock exchange list, Besserbrau AG must be in compliance with both in order to finance business operations and especially their new FDI (Brewery) in London.