02 Feb a. Explain the EU’s objective

Chapter 1: Exercise 1

1. Sony Corporation reported the following in the summary of Significant Accounting Policies included in the company’s 2012 annual report on Form 20-F (p. F-16):

Translation of Foreign Currencies

All asset and liability accounts of foreign subsidiaries and affiliates are translated into Japanese yen at appropriate fiscal year end current exchange rates and all income and expense accounts are translated at exchange rates that approximate those rates prevailing at the time of the transactions. The resulting translation adjustments are accumulated as a component of accumulated other comprehensive income. Receivables and payables denominated in foreign currency are translated at appropriate fiscal year end exchange rates and the resulting translation gains or losses are taken into income. Required: Explain in your own words the policies that Sony uses in reflecting in the financial statements the impact of changes in foreign exchange rates.

Chapter 2: Exercises 1 & 2

1. Refer to the income statements presented in Exhibits 2.9, 2.10, 2.11, 2.12, and 2.13 for Callaway Golf Company, Südzucker AG, Cemex S.A.B. de CV, Sol Meliá SA, and Thai Airways.

Required:

a. Calculate gross profit margin (gross profit/sales), operating profit margin (operating profit/sales), and net profit margin (net earnings/sales) for each of these companies. If a particular ratio cannot be calculated, explain why not.

b. Is it valid to compare the profit margins calculated in part (a) across these companies in assessing relative profitability? Why or why not?

2. Access the financial statements from the most recent annual report of a foreign company and a domestic company with which you are familiar to complete this assignment.

Required:

a. Determine the accounting principles (GAAP) the foreign and domestic companies use to prepare financial statements.

b. Determine whether the foreign and domestic companies provide a set of financial statements that includes the same components (e.g., consolidated balance sheet, consolidated income statement, and consolidated cash flows statement).

c. List five format differences in the companies’ income statements.

d. List five format differences in the companies’ balance sheets.

e. Note any terminology differences that exist between the two companies’ income statements and balance sheets.

f. Assess whether the scope and content of the information provided in the notes to the financial statements is similar between the two companies.

g. Compare the overall presentation of the financial statements and notes to the financial statements between the two companies.

Chapter 3: Exercises 2 & 4

2. Since 2005, publicly traded companies in the European Union have been required to use IFRS in preparing their consolidated financial statements.

Required:

a. Explain the EU’s objective in requiring the use of IFRS.

b. Identify and describe two issues that might hamper the EU from achieving the objective underlying the use of IFRS

3. Refer to Exhibit 3.6 in this chapter and note the countries that do not permit domestic listed companies to use IFRS.

Required:

a. Identify three countries from this group that are likely to have different reasons for not permitting the use of IFRS by domestic listed companies. Describe those reasons.