The Portable MBA in Finance and Accounting, 3rd Edition

Global Finance 415

and the chief accounting officer and /or the chief financial officer. The man-

agement report should acknowledge management’s responsibilities for the fi-

nancial statements and internal control, discuss how these responsibilities were

fulfilled, and provide management’s assessment of the effectiveness of the

company’s internal controls.^61

While the SEC has not adopted the Commission’s recommendation, many
companies have elected to provide voluntarily a report of management’s respon-
sibilities. While the precise title of the report may vary, representative
titles include, Report of Management Responsibility for Financial Statements
and Internal Control and Financial Reporting Responsibility. Although the pre-
cise language of the report differs from company to company, Exhibit 12.36 pro-
vides a representative example from the 2000 annual report of Delta Air Lines.
The precise meaning of the provisions of the Foreign Corrupt Practices
Actcontinues to evolve. However, in consider ing expansion into a countr y,
where improper payments have a long and durable tradition, Fashionhouse
must pay special attention to the existence and requirements of the Act.

SUMMARY

The evolution of Fashionhouse from a purely domestic firm to a truly global
entity continues to confront it with new and increasingly complex problems of
accounting, finance, and management. This chapter has followed Fashionhouse
through this evolution and attempted to help the reader become aware of the
problems faced and how they might be addressed. The range of issues ad-
dressed is broad and can become quite complex. It has not been possible, nor
would it have been appropriate in a chapter such as this, to deal with all as-
pects of every issue raised. The reader should consult the books and articles
cited throughout the chapter and in the list of “additional readings” for addi-
tional background.
The following are some key points for the reader to consider:

• International business and international operations raise challenges that
  transcend those of a str ictly domestic operation.


• Exposure to potentially adverse movements of foreign-currency exchange
  rates is a key challenge for firms that engage in international business.
  This currency risk can arise from both transactional and translational
  exposure.


• Both transactional and translational currency risk can be managed or
  hedged to some extent by relying on aspects of a firm’s own operations.
  This is normally referred to as employing natural hedges.


• Beyond the use of natural hedges, it is common for firms to use a variety
  of foreign-currency derivatives. For ward contracts and currency options
  are currently the most popular.