The Balance of Payment and accounting standards GAAP or IFRS

Document Type:Essay

Subject Area:Business

Document 1

All the transactions that bring money into a country gain entry into BOP as credit and those that call for payments to other countries are captured as debit. The BOP is a critical tool the points to areas of the economy that culminate into a surplus or deficits, and composes of four parts, that is, the current account (CA) which marks the inflow and outflow of goods and services, the Capital account (KA) that captures transactions involving disposal or acquisition of non-financial assets, like land and minerals. The Financial account (FA) marks all monetary flows while Statistical Discrepancy (SD) highlights the difference between gross domestic product and the country’s gross income (Ali, Johari, & Alias, 2014). The BOP credits occur where a country realizes an increase in domestic liabilities and revenues or where there is a decrease in expenses and assets.

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The BOP debits take effect when a country decreases its domestic revenue and liabilities as well during increases in expenses and assets. Therefore, this entry will be credited in the financial account column but debited in the capital account. The type of exposure the CFO of H & M faces due to differences in the US and Sweden reporting systems H & M is a global company that employs reporting standards that are in tandem with the regulations of each respective country. The parent country for H & M is Sweden and the Swedish accounting standards require all firms whose securities trade in the countries regulated the market to employ IFRS that aligns to EU accounting system. The H & M in the US would apply the Generally Accepted Accounting Principles (GAAP) in it accounting.

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The indication is that the company would experience challenges in the compilation of accounting data due to the use of different accounting systems. Such a challenge calls for a compilation of results using a single currency. operational hedging strategies that may offset exposure. Operations in more than one country expose H & M to foreign exchange exposure and this affects its payment and liabilities. Employing operational hedging substantially reduces such exposure, which may include; The signing of fixed long-term contractual agreements with suppliers and buyers This would be critical for H & M since it would ensure the firm has a certain and predictable future. The firm would not be exposed to the risk of foreign exchange fluctuation when making payments and this would facilitate stability in its operations.

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