Doman Industries Ltd:, whose products are sold in 30 countries worldwide, is an integrated Canadian forest products company.

Doman sells the majority of its lumber products in the United States, and a significant amount of its pulp products in Asia. Doman also has loans from other countries.

For example, on June 18, 1999, the Company borrowed US$160 million at an annual interest rate of 12%. Doman must repay this loan, and interest, in U.S. dollars.

One of the challenges global companies face is to make themselves attractive to investors from other countries. This is difficult to do when different accounting rules in different countries blur the real impact of earnings. For example, in 1998 Doman reported a loss of $2.3 million, using Canadian accounting rules. Had it reported under U.S. accounting rules, its loss would have been $12.1 million.

Many companies that want to be more easily compared with U.S. and other global competitors have switched to U.S. accounting principles. Canadian National Railway, Corel, Cott, Inco, and the Thomson Corporation are but a few examples of large Canadian companies whose financial statements are now presented in U.S. dollars, which adhere to U.S. GAAP, or are reconciled to U.S. GAAP.

Instructions

(a) Identify advantages and disadvantages that companies should consider when switching to U.S. reporting standards.

(b) Suppose you wish to compare Doman Industries to a Hs be competitor. Do you believe the use of country-specific accounting policies would hinder your comparison? If so, explain how.

(c) Suppose you wish to compare Doman Industries to a Canadian-based competitor. If the companies chose to apply generally acceptable Canadian accounting policies differently, how could this affeet your comparison of their financial results?

(d) Do you see any significant distinction between comparing statements prepared using generally accepted accounting principles of different countries and comparing statements prepared using generally accepted accounting principles of the same country (e.g. U.S.) but that apply the principles differently?

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