Essay about FC Determination Case Deloitte Cases

1569 WordsApr 2, 20157 Pages
Functional Currency Determination Case 10/10/2011 ABSTRACT In the dynamic global market, companies of all sizes, whether small, medium or transnationals interact with foreign companies and in most cases operate with currencies that are different from those that they commonly use. Foreign companies use foreign currencies for their expenditures, hedging strategies, and investing and financing activities. As a result these business activities must be reflected on the financial statements in the corporation’s reporting currency. FASB 52 and IAS 21 provide the appropriate guidance on the consideration of which functional currency should be implemented by the foreign subsidiaries. This case focuses in Sparkle a Nigerian subsidiary of a…show more content…
3. The currency that mainly influences labor, material and other costs of providing goods or services. 4. The currency in which receipts from operating activities are usually retained. 5. Whether the activities of the foreign operation are carried out as an extension or are autonomous. 6. Whether transactions with the reporting entity are high or low proportion of the foreign activities 7. Whether the cash flows of foreign operation directly affect the cash flows of the reporting entity. 8. Whether the cash flows from the activities of the foreign operation are sufficient to service debt obligations. As a result the dollar, due to international regulations, is the currency for transactions involving diamonds, Sparkle must comply the law, but the dollar and countries that use it as their primary currency does not significantly influence prices of diamonds since it is regulated and the main market for diamonds is located in Belgium country using the euro as primary currency. In this case, Sparkle would be in a situation where the volatility of the dollar could affect their overall performance, however to mitigate this risk, it may enter into forward or options contracts to ensure a steady cash flow. Another important point is that labor and operating expenses are determined in NGN. The expenditure for the acquisition of the machinery is an isolated incident and should not affect the cash flow at all because this is paid to a parent. The income generated by

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