The International Accounting Standards Committee (IASC) formed the International Accounting Standards Board (IASB) with the mandate of harmonizing accounting practices in the international sphere (Jeter & Chaney, 2016). The International Accounting Standards Board (IASB). The IASB is responsible for developing the International Financial Reporting Standards (IFRS) (Jeter & Chaney, 2016). However, when it comes to adopting the standards, some countries opt to use the convergence approach while others opt for the endorsement approach. In the convergence approach, countries choose to maintain their local standards, only converging their standards with IFRS after some time (Jeter & Chaney, 2016). On the contrary, countries that use the endorsement approach incorporate the individual IFRS into their local standards (Jeter & Chaney, 2016). Thus, a multinational corporation will account for its business operations depending on the approach to IFRS used in the country it operates in.
The issues of currency and exchange rates also play critical roles in international accounting practices. According to the IFRS, transactions should be measured and reported based on the currency that the multinational corporation prepares its financial statements (Jeter & Chaney, 2016). Therefore, for a U.S. firm operating overseas, the transactions made in the foreign market must be translated, meaning that the transactions must be expressed in U.S. dollars before being aggregated into its financial statements (Jeter & Chaney, 2016). There are two acceptable methods for translating financial statements. First, the current rate method is where all the assets and liabilities are translated according to the current exchange rate (Jeter & Chaney, 2016) . Under the temporal method, only the monetary assets and liabilities are translated using the current exchange (Jeter & Chaney, 2016).
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The Coca-Cola Company is one of the leading multinationals in the world. In the second quarter of 2019, the company reported a 5% growth in Latin America’s price/mix occasioned by strong performances in Mexico and Brazil and inflationary prices in Argentina ( The Coca-Cola Company, 2019) . Despite this growth, weaker functional currencies, evidenced by a drop in currency impact of 13%, led to an overall decline in revenues by up to 6% compared to a similar period the previous year ( The Coca-Cola Company, 2019) . Out of its six segmented markets, revenue drop was only experienced in its Latin American market. This drop can be attributed to the hyperinflation in Venezuela and the Argentine inflation since Coca-Cola Company uses the local currency as its functional currency.
References
Jeter, D. C., & Chaney, P. K. (2016). Advanced accounting (6th edition). Wiley.
The Coca-Cola Company. (2019, July 23). Coca-Cola reports continued momentum in second quarter; updates full year guidance. Coca-Cola Company. https://investors.coca-colacompany.com/filings-reports/all-sec-filings/content/0000021344-19-000031/a2019q2earningsreleaseex-9.htm
