International accounting is a broad topic that focuses on accounting challenges unique to multinational companies specifically concerning foreign activities. On the other side, international accounting includes the study of many functional accounting activities in all countries as well as well as supranational corporations. This study focuses on identifying the accounting issues faced by Besserbrau AG, a Germany beer producer with investments regarding beer production and sales in China.

After reading the case study, some international accounting issues have been identified that Bessebrau AG may be facing from its investments in China. One aspect is the problem of accounting for the foreign currency exchange regarding exports to China and imports from the Czech Republic. A significant issue is a method to be used in accounting for the changes in foreign currency exchange values receivable and payable that are experienced from fluctuating exchange rates.

Another accounting issue is how Besserbrau AG will account for the derivative financial instruments including foreign contracts and foreign currency options in both China and the Czech Republic, used to evade risks of foreign exchange associated with transacting with foreign currency.

There are also many accounting issues that Besserbrau AG will encounter due to its direct investment in China in relationship to GAAP, taxation laws and other regulations in both the Czech Republic and China. Besserbrau AG will have issues in figuring out and getting the sense of the financial statements of foreign acquisition goal made as per the unknown GAAP of China when deciding on direct investment in China. For instance, there will be issues with the conversion of profits from China’s GAAP to German’s GAAP as well as translating the Besserbrau’s profit earnings from Chinese to Germany Currency. Evaluating the performance of the company, accounting for Chinese taxation and German income generated in China.  Regarding taxation laws, there is the issue of complying with the Chinese laws of taxation as well as Germany laws of taxation. There will be a potential challenge of double taxation, and hence Besserbrau AG may opt for tax credits for relief on double taxation.

Another accounting issue is fixing prices for intercompany business activities that cross the national borders of China to achieve the company’s goals as well as comply with the Chinese governmental laws. Moreover, there will be challenges in evaluating the performance of investing and operations in China as well as the management of the company. The decisions to be arrived at must be made in accordance to issues such as the currency by which an operation in China ought to be analyzed based on if Chinese management will be responsible for actions for which they have very little control. Also, there will be the issue of developing an effecting internal audit process that will maintain and control the foreign activities in China. The differences in customs and culture will need to be considered.

References

Henderson, S., Peirson, G., Herbohn, K., & Howieson, B. (2015). Issues in financial accounting. Pearson Higher Education AU.

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