Accounting Reporting Criteria

By Martin Gonzalez,2014-11-22 16:57
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Accounting Reporting Criteria

    Accounting Reporting Criteria

    “Firms that conduct operations in more than one country through subsidiaries, divisions, or branches in foreign countries are referred to as multinational corporations (MNCs),” according to Weygandt, Kieso, and Kimmel (2005, p. 309). Accounting reporting criteria often differs with MNCs because of the standards the company adopts in another country, often different than U.S. Generally-Accepted Accounting Principles (GAAP). In examining the reporting criteria from other countries and comparing with U.S. GAAP, Boeing and United Technologies are prime examples of companies operating across national borders. Understanding such reporting criteria involves the criteria of GAAP, the regulatory environment in which the company operates, and the foreign currencies reported by the companies to understand the effects of translation on overall financial reporting.


    Most of the time, companies report under U.S. GAAP to remain compliant with the Securities Exchange Commission; this allows a company to be a publicly-traded company in the U.S. The Financial Accounting Standards Board (FASB) dictates GAAP in the United States, while the International Accounting Standards Board (IASB) dictates accounting standards for international corporations. In examining MNCs, the company must first select the accounting standards used in the preparation of financial statements for the firm.

    “A company may also use more than one cost flow method at the same time” (p. 251). The lower of cost or market means the company often values its inventories and other items according to what the market dictates is the actual value of the inventories and other items. Since MNCs operate subsidiaries in other countries, the subsidiaries often use a different method of inventory valuation; this statement is true with United Technologies, which uses the accrual

    accounting method that recognizes revenue when earned and expenses when incurred. United Technologies uses the first-in, first-out (FIFO) or average cost methods for inventories and contracts in progress but the subsidiaries use the last-in, first-out (LIFO) method of inventory valuation. The company does report that inventories would be higher under the FIFO method of reporting and discloses that such inventories “would have been higher by $173 million and $170

    million at December 31, 2007 and 2006, respectively” (Annual Report, 2007, p. 39). Boeing

    Corporation uses the cost-accounting method, in which inventory and costs associated with said inventory are recognized and reported on current statements, even if payment for goods and services are not received until a future date (also incurred under operating leases).

    Foreign Currency Exchange Rates

    MNCs also use foreign currency in international business transactions, often assuming the risk of “holding receivables that will pay in a foreign currency” because the foreign currencies exchange rate could move against the company, according to Kieso, Weygandt, and Warfield (2007, p. 338). Companies often use methods to protect their assets from the fluctuation of currency rates, often using hedging to protect the future value of the capital at current prices. Both Boeing and United Technologies are sensitive to the risks of the foreign currency market because of their status as MNCs.\

    Boeing (2007) states they “are subject to foreign currency exchange rate risk relating to receipts from customers and payments from suppliers in foreign currencies” (p. 39). The company uses hedging to protect the value of the contract against the future potential for unfavorable exchange movements. United Technologies also uses hedging techniques to minimize the risks of foreign exchange rate fluctuations and, as such, uses “derivative instruments, including swaps, forward contracts and options, to manage certain foreign currency,

    interest rate and commodity price exposures” (2007 Annual Report, p. 37). Both companies report balance sheet and other financial statement items in U.S. dollars because of their extensive exposure in U.S. markets.

    Regulatory Environment

    Companies are subject to the laws of the countries in which said companies conduct business with consumers. Such regulatory environments can include potential hazards such as government instability and even natural disasters; however, regulatory environments often mean the accounting environment. MNCs operate in different countries and must provide statements that are transparent and reliable while following government and financial regulatory standards. Full disclosure is a requirement for all companies, as the Enron and Arthur Andersen scandals for non-disclosure caused the collapse of both companies.

    In reviewing the annual reports for both companies, it is apparent the companies comply with regulatory practices of countries around the world, including the regulation of finances incurred through the creation of aircraft and other products released by both companies.


    Boeing. (2008). The Boeing Company 2007 Annual Report. Retrieved February 22, 2009, from

    the Web site:

    thKieso, D.E., Weygandt, J.J., & Warfield, T.D. (2007). Intermediate Accounting (12 Ed.).

    Hoboken, NJ: John Wiley & Sons, Inc.

    United Technologies Corporation. (2008). United Technologies Corporation Financials: 2007

    Annual Report. Retrieved February 22, 2009, from the Web site:


    thWeygandt, J.J., Kieso, D.E., & Kimmel, P.D. (2005). Financial Accounting (5 Ed.). Hoboken,

    NJ: John Wiley & Sons, Inc.

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