Agriculture Reference
In-Depth Information
performance of U.S. agriculture is closely tied to changes in the value of the dollar relative
to other currencies.
Export profi ts can also be reduced signifi cantly with highly fl uctuating exchange rates.
For example, a U.S. agribusiness agrees to sell 3,000 tons of corn to a Japanese buyer for
12,500 yen per ton. If the exchange rate increased in terms of foreign currency per U.S.
dollar between the time of the contract and the actual time of payment, then the U.S. fi rm
would earn a lower profi t because it would receive fewer dollars for the corn.
Agribusinesses can deal with exchange rates in several ways. Sometimes U.S. exporters
agree to accept payment in foreign currency because they can more effectively manage the
exchange rate risk. This approach can be a bargaining chip as well because foreign fi rms
may be willing to pay a higher price in their home currency. Another method to deal
with fl uctuating exchange rates between the United States and the importer is to negotiate
payment in another country's currency that is relatively stable. Still another method is to
agree to divide the gains and losses in the exchange market, or to use the futures markets and
manage the risk using currency futures.
Accounting differences
The internationalization of business is also made complex by the different accounting meth-
ods that are used in each country. Financial terms are often quite different—“inventory” in
the United States is “stocks” in the United Kingdom; “retained earnings” in the United States
is “profi t and loss reserve” in the United Kingdom. Some fi nancial statements do not even
exist in other countries. The “statement of cash fl ows,” an important accounting statement in
the U.S. fi nancial market, does not exist in countries like Germany and Japan.
Financial statement format often varies from one country to another. In the United States,
assets are presented in order of their liquidity—the most liquid or current assets are listed
fi rst followed by less liquid assets. British fi nancial statements are listed exactly in the oppo-
site order. In fact, assets and liabilities are listed together.
The accounting for noncurrent assets can vary substantially between countries. In the
United States, large equipment and capital assets are valued on balance sheets at their his-
torical cost. The value of these assets is depreciated as a means of allocating the costs of
these assets to their use over time. However, the original asset value on the balance sheet
never changes. That is, an asset's value on the balance sheet rarely refl ects the replacement
cost or market value of that asset. Firms in countries such as Australia, Canada, and the
United Kingdom periodically appraise their assets and make adjustments to refl ect their
current market value. Depreciation is then estimated using these adjusted asset values.
Research and development (R & D) expenditures are also accounted for differently
between countries. In the United States, R & D costs are treated as an expense in the
period in which they are incurred. In Brazil, R & D expenditures are capitalized to provide
an incentive for companies to invest in developing new products.
As noted, exchange rates between countries fl uctuate because of many different factors.
These fl uctuations may make it diffi cult to combine the fi nancial data of foreign subsidiaries
with domestic subsidiaries. Companies that trade stock or debt securities on exchanges
located in other countries (such as the Nikkei in Japan) as well as the United States may have
to prepare different fi nancial reports that comply with the particular accounting standards for
that country. As you might imagine, these differences in accounting standards between
countries have added much complexity to issuing fi nancial statements in a timely, accurate
manner.
