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Shareholders are becoming increasingly interested in the environment and social responsibility policies, impacts and practices of business entities, however financial statements have not traditionally provided

Shareholders are becoming increasingly interested in the environment and social responsibility policies, impacts and practices of business entities, however financial statements have not traditionally provided this information. As a result, there has been significant growth in entities providing narrative environmental information on a voluntary basis.

Required: Critically assess the benefits of social and environment reporting to investors for the reporting entities to disclose the information voluntarily. 9 marks

Top Klove, a public limited company, has an overseas subsidiary, Lex. Top Klove is based in a country which has a currency of the dollar. Lex is based in Japan where the currency is the yen. Top Klove sell golf attire and Lex sells golf equipment. Lex is financed by the provision of long-term loans at market interest rates in dollars from Top Klove. Top Kloves sales are mainly in its own jurisdiction and are priced and collected in dollars. The legal requirements and the business environment in Top Kloves jurisdiction determine the pricing of Top Kloves products. Goods and services are sourced locally and paid in dollars but occasionally the entity trades in small amounts in other currencies. Lex conducts its business with significant autonomy from Top Klove as it manufactures golf equipment which it sells mainly in Japan in yen. Local management determines prices based upon the local legal and business conditions. Most raw materials and labour are sourced from local suppliers with a small amount of specialised material sourced from China. Lex sells a small amount of golf attire which it purchases from Top Klove and pays in dollars. The directors require advice on the determination of each of the functional currencies of Top Klove and Lex.

Required:

Advise, Top Klove on how the functional currencies of Top Klove, Lex should be determined with reference to the relevant International Financial Reporting Standards. (8 marks)

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