Use of Pension and Other Post-employment Benefit Disclosures to Assess a Company’s Assumptions and their Impact on the Financial Statements and Ratios
Assumptions and estimates made when calculating pension-related amounts can affect comparative financial analysis using some ratios based on financial statements. Assumptions Different companies make different assumptions, e.g., different discount rates, and this affects comparisons across companies. Recall that a company…
The Impact of Changes in Exchange Rates on the Translated Sales of the Subsidiary and the Parent Company
IFRS and US GAAP require parent companies to prepare consolidated financial statements. Further, IFRS and US GAAP require parent companies to add domestic and foreign subsidiaries operations to their operations. In most cases, a foreign subsidiary operates primarily in the…
Presentation Currency, Functional Currency, and Local Currency
A multinational corporation is a firm that has business operations located in at least one country besides its home country. It may engage in transactions that are denominated in foreign currency or invest in foreign subsidiaries that keep their financial…
Translation Effects of a Subsidiary’s Balance Sheet and Income Statement
Recall from the previous LOS that there are two translation methods: the current rate and the temporal methods. To demonstrate the translation effects of a subsidiary’s financial statements into the parent company’s presentation currency, we will look at the following…
Current Rate Method and Temporal Method of Translation
Translation refers to converting the functional currency into the parent’s presentation currency. The procedures specified by IFRS and US GAAP for translating foreign currency financial statements essentially require the use of either the current rate method or the temporal method. The…
Foreign Currency Transaction Exposure: Accounting for and Disclosures
Foreign currency transaction exposure is the risk of the exchange rate fluctuating before the payment obligation is fulfilled. If the foreign currency rises in value, it costs more in a company’s home currency. If a company imports or sells goods…
Components of a Company’s Defined Pension Costs
The periodic pension cost of a company’s defined benefit plan is the change in the net pension liability or asset adjusted for the employer’s contributions. The following make up a company’s defined pension costs: 1. Service Costs Current service cost…
Measures of a Defined Benefit Pension Obligation
The pension obligation is measured as the present value of future benefits that employees earn for services provided under both IFRS and US GAAP. It is denoted as the present value of defined benefit obligation (PVDBO) under IFRS and projected…
