multinational corporations and financial accounting framework
TRANSCRIPT
Multinational Company?
What is …
Multinational Company (MNC)
delivers services facilities
controls production
At least 2 countries
*Originated in 20th century and expanded after World War II.
Also can be named as… Multinational enterprise (MNE), Transnational corporation (TNC), Multinational organization (MNO) , Super National Enterprises, Global companies, Cosmocorps, International corporation.
Examples…..
Characteristics:
of Multinational Companies (MNC)
Advantages & Disadvantages
Advantages Acquire larger pool of customer Borderless World- do global, get
more customers 96% Consumers/ 67% World
Purchasing Power=> Outside U.S.A.
Advantages Create rivalry and increase competitiveness
Source : http://www.goldensegroupinc.com/mosongo/0906CW-IndiancompaniesvsMNCsTheRaceIsStillOn.pdf
Advantages
Gain cost advantage Increase efficiency, cut costs India receives most of all offshore revenue Companies from U.S. and Western Europe
have hired 170,000 Indians
Advantages Avoid trade barriers Inward investment- build own facilities Japanese car manufacturers invest into UK -
avoid EU Common External Tariff- UK can access to high-quality cars at lower prices.
Disadvantages Exploitation on natural resources
by MNCs Japanese MNCs - obtain raw materials
or lower-cost components to the international markets (Ozoigbo & Chukuezi, 2011)
Disadvantages
A threat to economic and political sovereignty of host countries, perhaps
Protectionism Keep new entrants away from market- reap
profits
Disadvantages
Destroy local companiesDestroy competition in local market
Acquire monopoly through acquisition of domestic firms
Disadvantages MNCs may ignore home countries’
industrial and economic development More investments to foreign countries Less availability of domestic capital
BENEFIT MULTINATIONAL
COMPANIES
Harmonization of accounting standards
Systematic review and evaluation of the company performance
Communication within the groups become easier Monitoring business operation and take
corrective action
Increases comparability of company performance against domestic and international peers
Financial statements presented on same basis Analysis of competitive and operational can be
conducted easier
Attract capital from a larger pool of investors
Differences in financial reports reduced Better quality and credibility of financial report Investors understand and confidence
Reduce reporting costs
Simplified consolidation of financial statements of foreign subsidiaries
Accountants only require knowledge for common accounting practices
Easier to move accounting staff between foreign subsidiaries
Increase mobility of accountants Not need outsource accounting tasks Better respond and manage human capital needs of
subsidiaries
- Align two sets of standards
What MASB Do???
Renamed as Financial Reporting Standards (FRS) & Renumbering
the standards
Correspond to international standards Example: >> IFRS 1 to 5 are FRS 1 to 5 in Malaysia
Introduced a two-tier reporting framework
For non-private entities:>> Financial Reporting Standards (FRS) For private entities:>> Private Entity Reporting Standards (PERS)
FRS made identical to IFRS and 10 revised accounting standards issued
Removed all remaining differences>> Local guidance and editorial matters
Issued statement about the fully convergence plans with IFRS
Ensure companies have sufficient time to prepare
Ample time frame was necessary to adopt remaining standards
Issued Malaysian Financial Reporting Standards (MFRS)
Fully IFRS-compliant framework Equivalent to IFRS
- Arising from new Financial Reporting
Standard
What is the impact??
Increase the transparency of financial reporting
Provide more disclosures
More flexibility in financial reports Principle-based standard To determine stock option value: >> Not only use option pricing model
>> Allow for use of valuation techniques
Increase the credibility and reliability
High quality and consistency reports Increases the ability of foreign investors and
analysts to understand
Greater comparability
Sets limits on the alternatives allowed for similar transactions
Facilitates comparison between Malaysian companies with foreign companies
Small companies bear a higher cost
Lesser resources to handle the implementation and training