foreign currency translation

Competency

Measure the accounting for foreign currency and its translation.

Scenario

CM Corporation (CMC) was founded six years ago by Phil Connor and Eric Martin. The company designs, installs, and services security systems for high-tech companies. The founders, who describe themselves as “entrepreneurial geeks,” met in a computer lab when they were teenagers and found they had common interests in working on security systems for critical industries. CMC hired you as a junior accountant this year.

Lately, Connor and Martin have been working with “radio frequency identification” (RFID) technology. They have developed a detailed system designed to track inventory items using RFID tags embedded invisibly in products. This technology has numerous inventory applications in multiple industries.

One of the most basic applications is tracking manufacturing components; if tagged components “go walking” (if employees attempt to take them), companies can easily track and find them. Connor and Martin have sold their system to several high-tech companies in the area. These companies have a number of government contracts that require extensive security systems to protect sensitive data from infiltration by terrorists and others. To date, CMC’s cash flow from sales and services has adequately funded its operations.

CMC expects much growth potential for its products. As a result, they are considering going public and expanding internationally in the near future.

Instructions

Connor and Martin are contemplating international business in their industry and feel that global expansion is a great transition for the company. They feel they understand IFRS much better in addition to having a greater technical grasp of GAAP. They have decided to go public and also expand internationally within the next two to three years. With making such bold moves, they are also seriously considering a switch to IFRS as their accounting standards for financial statements. Connor and Martin have requested your assistance in creating a PowerPoint presentation that summarizes information on the impact of foreign currency should the firm expand internationally.

Presentation Mechanics should be as follows:

  1. Prepare a 5-8 slide PowerPoint presentation, including slide notes.
  2. Summarize the impact foreign currency will have on a firm expanding internationally.
  3. Explain the advantages and disadvantages to foreign currency translation of financial statements.
  4. Explain different reasons for the firm to continue with accounting under US GAAP or switching to IFRS standards.
 
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