Acc512 Unit1 Besserbrau AG Case
There are several issues the Besserbrau AG will face. With the expansion into China, Besserbrau AG will need to account for Foreign Direct Investment (FDI). They can do this by adapting their accounting standards to meet the requirements in China. The profits made by BB Pijio will need to be converted from Chinese GAAP to German GAAP. These profits will also need to be translated between the two currencies and the overall performance of BB Pijio.
Besserbrau AG would face an issue with the sales to foreign customers. Since both of the countries have different currency, in order to account for their export sales, they will need to convert the Chinese Yuan into the German Euros for both the sale and the receivable.
Besserbrau AG would also face an issue with foreign exchange risk. To reduce their risk to foreign exchange risk, Besserbrau AG could set the requirement that all foreign customers pay for products in Euros.
Cross listing on foreign stock exchanges is another issue Besserbrau AG would face. Since Besserbrau AG negotiated a listing on the London Stock Exchange to help finance their new facility, they must stay in compliance with the regulations pertaining to the London Stock Exchange. In order to stay in compliance, they will need to fully understand the financial reporting requirements.
In order to minimize taxation Besserbrau AG could use discretionary transfer pricing. This would give them the ability to shift their profits between China and Germany. By doing this, they need to follow the laws for regulating international transfer pricing for each country.
It is obvious that Besserbrau AG has a number of issues they will face with their expansion into China. I believe the issues listed above are the major issues they will have to face and conquer in order to be successful in this endeavor.
Sources:
Doupnik, T., & Perera, M. (2015). International accounting (Fourth ed.). New York, N.Y.:
McGraw-Hill Education.
Besserbrau AG would face an issue with the sales to foreign customers. Since both of the countries have different currency, in order to account for their export sales, they will need to convert the Chinese Yuan into the German Euros for both the sale and the receivable.
Besserbrau AG would also face an issue with foreign exchange risk. To reduce their risk to foreign exchange risk, Besserbrau AG could set the requirement that all foreign customers pay for products in Euros.
Cross listing on foreign stock exchanges is another issue Besserbrau AG would face. Since Besserbrau AG negotiated a listing on the London Stock Exchange to help finance their new facility, they must stay in compliance with the regulations pertaining to the London Stock Exchange. In order to stay in compliance, they will need to fully understand the financial reporting requirements.
In order to minimize taxation Besserbrau AG could use discretionary transfer pricing. This would give them the ability to shift their profits between China and Germany. By doing this, they need to follow the laws for regulating international transfer pricing for each country.
It is obvious that Besserbrau AG has a number of issues they will face with their expansion into China. I believe the issues listed above are the major issues they will have to face and conquer in order to be successful in this endeavor.
Sources:
Doupnik, T., & Perera, M. (2015). International accounting (Fourth ed.). New York, N.Y.:
McGraw-Hill Education.