Question 1. The International Organization of Securities Commissions (IOSCO) is a group of top securities administrators from about 50 countries. The Securities and Exchange Commission (SEC) is a member of IOSCO. IOSCO is a primary supporter of the internationalization of financial reporting standards through the International Accounting Standards Board (IASB). At a recent meeting, a discussion of the pros and cons of internationalizing financial reporting standards included the following arguments:
Pro:
Having the same accounting standards for external financial reporting for all securities markets will reduce misunderstandings and create comparable information. For example, investors will be able to compare the financial reports of similar companies located in the United States with those located in China and decide where best to allocate their investments. One set of accounting standards will also save corporations money because they will not need multiple sets of books to track their international operations.
Con:
Requiring companies that list on all global securities exchanges to use the same external reporting requirements will mislead investors. For example, in countries where the majority of investment funds come from banks in the form of long-term borrowing, debt to equity ratios will look very different than those of comparable U.S. firms. Accounting information must reflect its environment. Besides, as all business becomes global, reporting requirements will naturally evolve to what investors demand.
Instructions
Write a summary reflecting your opinion about the value of harmonizing standards for global equity markets. Support your opinions by referencing comparable cross-country companies you have located on the Internet.
Question 2. Kendahl Plastics Corporation contracts with NASA to manufacture component parts used in communications satellites. NASA reimburses Kendahl on the basis of the actual manufacturing costs it incurs, plus a fixed percentage. Prior to being awarded a contract, Kendahl must submit a bid that details the estimated costs associated with each project. An examination of Kendahl's job cost sheets reveals that actual costs consistently exceed cost estimates quoted during the bidding process. As a consequence, NASA ends up paying considerably more than the bids Kendahl submits.
A Kendahl representative was recently quoted saying, "We really aren't overcharging NASA for the work we do. The actual costs shown on our job cost sheets seem high only because we are forced to understate our bid estimates in order to be awarded contracts. It's a common practice, and everybody does it. The truth of the matter is companies that quote realistic bid prices are not awarded contracts."
Instructions
Let us assume that it is common practice to purposely underestimate bids in order to win NASA contracts. Is it wrong for Kendahl to take part in this activity as long as it does not overstate the actual costs it incurs?