Complying with International Accounting Standards

Title: Contrast and compare the method and footing upon which Nike Corporation studies on foreign currency deductions in footings of IAS 21 and all other relevant IAS IFAS ordinances. In the event if the company reports harmonizing to international criterions, discourse the deductions in relation to the criterions applied in the Home state of the corporation.


Globally, there are figure of accounting criterions, most of all, two primary accounting criterions are International Accounting Standards implemented by the International Accounting Standards Board ( IASB ) and the Generally Accepted Accounting Practice of the USA, which is implemented by the Financial Accounting Standards Board ( FASB ) . Accounting Standards are set of accounting regulations that govern the manner in how the histories ( fiscal statements ) of a corporation is displayed

At an international degree, it is the duty of The International Federation of Accountants ( IFAC ) to regulate accounting organic structures in regard of conformity with accounting criterions. The aim of the federation is to “develop and heighten world-wide accounting profession with consonant standards”1 and integrated coordination within the profession. Where a concern has an international dimension, it must adhere and follow with the international accounting criterions.

In add-on, conformity with IAS will help international concerns and international investors to interpret the relevant accounting information of the internationally trading concern. For illustration, to contrast a Gallic company with an Australian company it is needed for each company to expose their accounting information in an suitably comparable method.


IAS include a figure of criterions, each criterions trades with assorted accounting issues associating to foreign minutess and other minutess that do non hold a domestic component and therefore necessitate to be regulated at an international degree.

International Accounting Standard 21 is used for the prescription of the standard signifier of including foreign currency minutess and foreign operations in the company’s fiscal statement. Additionally, it prescribes the interlingual rendition of fiscal statements into a presentation currency. The troubles underscoring this rule are finding the employment of an exchange rate and the describing the effects of alterations in exchange rates in the fiscal statements.

Following are some of the cardinal accounting nomenclature used under IAS 21.8:

Functional currency/measurement currencyis the currency of the primary economic environment in the legal residence of company’s operation.

Presentation currency is the currency in which fiscal statements are presented.

Exchange difference is the difference ensuing from a transition of certain units of a one currency into another currency at a different exchange rate.

Foreign operation relates to the activities that are based in another state other than the coverage endeavor this include a subordinate of the parent company, associate, joint venture or a subdivision.

The measuring and presentation of fiscal statements under IAS 21 was superseded by IAS 21 ( revised 2003 ) ; this alteration is the effect of the effects of alterations in Foreign Exchange Rates. This was effectual on one-year fiscal periods get downing on or after 1stJanuary 2005.

ISA 17 requires that revenue enhancement related issues must be compiled in fiscal histories in conformity with the IAS by exposing assets taken on rentals on the balance sheet 2. Under IAS 29.39 ( B ) and 40 corporations are under duty to place the use of methodological analysis in using IAS 29 as a revelation policy of the accounting criterions 3.

ISA 39 is used for the measurement and valuing assets and fiscal liabilities that in foreign currency. ISA 21 concerns the exchange rates in change overing foreign currency fiscal assets and liabilities into national currency by utilizing the end-month exchange currency rate 4.


International Accounting Standards are set of elaborate list of regulations prepared for comptrollers and companies for the conformity in the production of accounting statements.

International Accounting Standards Board ( IASB ) under ( SIC 30.7-14 ) permits some endeavors in other states in a hyperinflationary environment like the USA to utilize USA dollar other than utilizing the measurement currency. In the event that a corporation applies this allowance, the corporation must guarantee that impacts of hyperinflation are suitably addressed ( ISA 21.36 ) 5. However, must follow the right process by repeating the local-currency IFRS fiscal statements to the mensurating unit current at the balance sheet day of the month [ IAS29.7-8 ] [ SIC-19.5-9 ] , so, utilizing the year-end exchange rate, to interpret the fiscal statements into the stable currency for all periods presented.

SIC 19 articulated that the commissariats for fiscal information must be utile to reflect the pecuniary kernel of the cardinal events and fortunes that are relevant to that company. Furthermore, the use of currency to mensurate points in the fiscal statement must be tailored to supply information sing the company. The measuring of foreign currency points must be treated as foreign currency in the fiscal statement and the construing of fiscal statement. Inevitably, there are no commissariats under the International Accounting Standard 19 for corporation to randomly take to accommodate steps for the turning away of repeating fiscal statements that are treated in the currency of a “hyperinflationary economy” .

Hyperinflationary economic system has the undermentioned component: the accretion of non-economical assets in a stable foreign currency ; the look of well stable foreign currency is known as a financial sum, these being capital goods, rewards and rent. Price index interconnects to pricing, pay of workers and the involvement rates. Under IAS 29.3 ( a ) ( vitamin E ) the cumulative rising prices rate over three old ages will near or transcend 100 % . Finally, the pricing of recognition gross revenues are measured in a manner that compensates for the awaited loss of dickering power during the recognition period.

As an illustration, lets assume that a British company as a step of its points in the fiscal statement uses the British lb as an appropriate currency under the IAS 21. In add-on, the company restates the same fiscal statements under the rule of IAS 29, which the fortunes indicate that the British lb is the currency of “hyperinflationary economy” . On the contrary, the company is non precluded from change overing the fiscal statements to be presented in Gallic francs.


The Generally Accepted Accounting Practice ( USA ) is the accounting criterions that are used with the United States of America to regulate USA corporations. These criterions are distinctively different from IAS as “U.S. accounting criterions have become “rules-based, ” filled with specific inside informations in an effort to turn to as many possible eventualities as possible”6. Subsequent to the execution of the Sarbanes-Oxley Act of 2002 in an effort to turn to the job, required the SEC to analyze the practicableness of a principles-based accounting system. It was concluded that, feasibleness of a principles-based attack could reflect minutess at a true economic substance 7.

Within the USA legal power there is a local monopoly for the authorship of fiscal coverage criterions for public companies. The statutory authorization over fiscal coverage criterions is vested in the Securities Exchange Commission ( SEC ) and the authorship criterions are delegated to the Financial Accounting Standards Board ( FASB ) .

Most USA based corporation use the Generally Accepted Accounting Practice. In the initial contemplation of criterions, GAAP is principles-based systems that pose troubles, which tend to originate when specific criterions come up for consideration.

However, non-adoption of cosmopolitan criterions of accounting have caused great troubles to build the cost and benefits of typical and consonant fiscal coverage to get at efficient solutions. In add-on, this has created farther jobs for users of fiscal information because of the complexness in understanding the fiscal statements of abroad corporations.

However, there is concrete grounds that figure of states use the USA accounting criterions as a benchmark to manner criterions appropriate for their ain economic system. It is articulated that the Accounting Standards Board ( IASB ) , the FASB and the SEC are the best patterns in the universe. This is the ground environing USA determination non to accommodate cosmopolitan accounting criterions. In add-on, U.S. permits companies to accommodate to looser By and large Accepted Accounting Principles.

In the contrary, the president of the SEC and the FASB and IASB have reached a consensus in 2002 on working together toward a greater convergence between U.S. Generally Accepted Accounting Principles and international accounting criterions.

International Standard

International Accounting Standards are used in fixing fiscal studies. It was the Lisbon Council of European Union ( EU ) to advance a sole, lasting and liquid fiscal market by the version and enforcement of a individual and united set of fiscal coverage criterions. The intent of the ISA was to set up and continue quality criterions for all individuals who used such fiscal information.

The acknowledgment of the heightening globalization made tremendous demands for a better and higher quality international accounting criterions. The European Commission favoured the proposals for IAS and challenged the SEC determination to disapprove the use of ISA in the USA markets. SEC concerns over the possible acceptance of ISA was in regard of the jobs that may originate by the non-correspondence of histories between different corporations may put some companies at a disadvantage with their opposite numbers.


In June 2001, the displaying of trade names and other rational belongings on the balance sheet of USA based corporations was titivated under the USA GAAP ( Generally Accepted Accounting Practice ) . This was the consequence of a proficient differentiation in accounting policies of USA GAAP and IFRS ; the differentiations were in relation to the amortization of good will, negative good will and hedge accounting 8. Although, the overruling benefit of using IFRS is comparable to USA based corporations. Once, the users of accounting information such as investors, stockholders and other corporation faced intensive troubles in trying to construe and understand histories of abroad companies due to the use of diverse pecuniary linguistic communication. But the current accounting policies of IFRS purposes to turn to and help in the determination doing procedure of those who are effected by accounting policies and possible investors.

Huge figure of corporation are faced with figure of trouble in regard of taking the right signifier of accounting criterion. Predominantly, big figure of USA companies, autumn into this class ; the ground behind this being that USA has its accounting criterions that are non parallel with the international accounting criterions.

This conflicting factor between the two accounting patterns render it incompatible for USA companies like Nike to do commissariats taking to follow with both accounting patterns. However, in accounting pattern this is impracticable and impracticable unless an endeavor compiles two sets of histories that comply with both patterns.

To turn to this conflicting domination on many investors and others likewise, USA committee is coming to footings with accepting the demand for high quality fiscal coverage model. As the turning insensitiveness in globalization of companies and for the protection of the activities and involvement of investors, loaners and companies, the Commission is heightening its engagement in a figure of forums to set up a universally accepted fiscal coverage model 9.

However, the SEC’s supervising and disposal for the equity of fiscal studies submitted by corporations will go on under the competitory government. At present, non much revelation on societal and environmental issues is required of US companies in contrast to demands emerging in Europe and elsewhere around the universe. However, a former legal research in 1999 by Williams suggested that the SEC coherently has the authorization to necessitate such revelations. The job being that insufficient action has been taken to implement a authorization for societal and environmental revelations by companies in the USA. US companies are neglecting to describe on environmental and societal tendencies and events that possess material impact. Consequent to the findings of a research on non-compliance with revelation regulations ; Sarbanes-Oxley attempted to better the rightness of fiscal studies and ethical criterions of companies ” 10. Problems exist in this country because of “too many different criterions, increasing costs of coverage, fright because of Kasky v. Nike, inquiries about materiality, and the fact that confirmation procedures are immature”11.


Nike is one of the top athleticss retails in the universe ; the company’s aim is to make concern with contrast mills that persistently illustrate conformity with Nike’s criterions and that operates in a lawful mode. Nike is the lone company that has created its ain criterions, programmes and activities to place reference and study issues of conformity in contract mills to assist find development.

Presently, there are no industry-accepted indexs for mensurating Next’s public presentation. Neither there are any standard coverage conditions in regard of contract mills, which can be by and large accepted. However, Nike has its ain creative activity of mensurating its ain criterions, programmes and activities to place reference and study issues of conformity in contract mills.

The concerns over whether Following Corporation complies with any accounting criterions is an unreciprocated inquiry. Another cause of concern is that “the hearers besides use questionable research methods, of which Nike merely makes the consequences public that do non harm its reputation”12.

Over the old ages Nike had been capable to case in relation to its legal duty over the conformity of its providers with local labor Torahs and the accounting patterns that were used to immune its repute. These sorts of allegations will necessarily form on the heads of consumers. Then the “Nike ‘s success, like that of so many modern companies, is all about keeping trade name values and the value of the brand”13. Fortunately, engineering is at manus to assist companies pull off this hard undertaking. Clearly, unless staff have the necessary preparation and accomplishment non merely to execute their responsibilities aptly but besides in conformity with the company ‘s ethical and concern criterions, good administration and conformity will non be achieved. That applies merely every bit much to providers as it does to the primary trade name proprietor – and it goes right to the bosom of good corporate administration 14.

In 2003, Nike adopted the Financial Accounting Standards Board Statement 142 for the appraisal of its Goodwill and other touchable assets 15. In relation to the revelation of sections of an endeavor and related information, Nike has adopted Statement of Financial Accounting Standard No131 ( 16 ) . However, far from over these steps are merely in conformity with the USA GAAP and non with the IAS.

NIKE’S Accounting Policy

Harmonizing to the accommodations on the fiscal statements of Nike, there were accommodations associating to the transition and interlingual rendition of foreign functional currencies into USA Dollars. This is reflected by the inclusion of the accommodations of foreign currency interlingual renditions and a constituent of accretion of the comprehensive income/losses in shareholders’ equity.

It is apparent from Nike’s histories, that the coevals of transactional income and losingss as an effectual facet of accounting of foreign exchange on the recording of assets and liabilities of the company is denominated in a typical currency other than the currency that is applicable for the company are recorded in other disbursals.

However, the inside informations of these generational minutess are non recorded in the period of their happening. However, under IAS 29, 26 and 30 it is required to describe the consequence of hyperinflation, which must be restated in footings of the mensurating unit current at the balance sheet day of the month. That the historical cost income statement by and large recognises grosss and disbursals at monetary values current at the dealing day of the month. Nonetheless, IAS provide a degree of flexibleness in following different accounting standards17.

Already, Nike was capable to figure of cases because of its falsified information on its histories ensuing from the intervention of labour workers around the universe. The legal proceedings in June 2003 involved allegations that Nike made “false statements in public dealingss materials” 18.

The troubles underscoring for Nike in the adoptability and conformity with a chosen set of accounting criterions is that Nike has operations in the USA as its legal residence of abode ; therefore, Nike is required to adhere to USA GAAP. In other words, the obstruction caused by conformity with USA GAAP means that Nike can non pick to roll up its fiscal studies in conformity with the IAS.

Nike represents fiscal statements in USA dollars instead than the measurement currency but it guarantee that the impact of hyperinflation under ISA 21.36 is adequately dealt with in the fiscal statements. This enables Nike to do conformity steps for GAAP and IAS 21.


In the USA, it is the duty of the SEC to oversee corporations on their conformity of the accounting criterions. In the event of unjust coverage, the SEC will go on to raise inquiries with the corporations and their hearers.

A corporation will be capable to disciplinary action in the event of a failure to follow with the altered coverage or auditing triggered by the unfairness in describing. In the event of relentless unfairness and non-compliance regardless of the conformity of studies to the adapted set of fiscal criterions, the SEC ( regulator ) will bespeak the incorporators of the accounting criterions to undertake the quandary.

Disciplinary action against USA hearers are functioned and segmented among the authorities and self-regulatory administrations both at federal and province degrees.

Where a USA corporation adapts International Accounting Standards, SEC has the authorization to necessitate that corporation to obtain an accounting study audited by the hearers who are capable to a regulative government that is acceptable to the SEC.

However, if a corporation failed to follow with accounting criterions and have produced deceitful histories misdirecting investors and other history users so the corporation’s comptrollers are capable to condemnable liability. The treatments in 2004 over the Parmalat dirt due to non-compliance with accounting criterions made Accounting Bodies realise that “fraud knows no national boundaries” Donaldson. Furthermore, he added “the lesson from Parmalat is a lesson for the demand of cooperation between United States and regulators around the universe that is precisely what we are naming for now” 19.


Despite of troubles arise by figure of typical accounting criterions, there are besides advantages behind the devilling frame ; the handiness of different accounting criterions has made gradual and steady betterments in the efficiency of corporate administration and in the apprehension and construing of company histories.

However, on the other terminal of the spectrum, there were and presently are underscoring troubles in the use of different accounting criterions. First, there are issues that are cause for concern particularly the issue of retreating corporations to taking to follow accounting criterions from a wide scope of picks instead than modulating on the domestic pattern of accounting criterions and curtailing the adoptability of other criterions.

There are typical differences between the accounting criterions at an international degree and USA degree, this renders it intensive for most international companies that wish to hold operation or those that already have operations and those corporation that intend to raise financess in the USA capital market as they are required to adhere to the USA GAAP. This same quandary includes Nike Corporation as it has USA operations.

1Fiscal Reporting Alexander D and Britton A 2002 6Thursdayedt p159

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11Williams, Cynthia A. 1999. The Securities and Exchange Commission and Corporate Social Transparency. Harvard Law Review, 1197, 1998-1999, 112: 1197-1298.

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19Meeting in Brussels 2004



Fiscal Reporting Alexander D and Britton A 2002 6Thursdayedt Financial Times Prentice Hall

Williams, Cynthia A. 1999. The Securities and Exchange Commission and Corporate Social Transparency. Harvard Law Review, 1197, 1998-1999, 112: 1197-1298.

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Meeting in Brussels 2004