Question

Five Star enterprises is a multinational company situated in Muscat and is operating in more than 26 different countries. Majority of multinational companies are facing a problem that accounting rules are different around the world. Same is the case with Five Star enterprises. While preparing their statements, they often have to prepare them twice, once in their home country in accordance with the home country rules and once abroad in accordance with the foreign rules. Additionally, every region has different historical backgrounds, norms and political systems. They also have different patterns of financial accounting practices.

Due to all these factors and practices, businesses are under high risk by treating same problems differently all over. Likewise others, Five Star enterprises also faces difficulties while preparing their financial results. The management finds it risky, when same company operating in different countries follows different pattern of reporting. To consider these different accounting rules, now throughout the world, there is strong need of international harmonisation, and nearly all the countries in the world now support to develop a set of international accounting standards.

It focuses on narrowing the areas of difference and to eradicate undesirable alternative practices in financial reporting. It is process of merging and combining various practices into an organized structure, which produces collaborative result. It is believed some companies have a public accountability to a great variety of interest groups. These differences which are in the mind of accountants lead to different views on what is suitable accounting treatment.

1. You are the country manager of Five Star enterprises Oman. Your head office in Italy, is receiving collective feedback from all the branches. Being the representative of Five Star enterprises, what would be your feedback in support of harmonisation?      

2. In your opinion, what were the challenges faced by Five Star enterprises while preparing their

annual report and explain how it can be avoided in future?                                        

Your answer should be around 400 words for each question.

Answer 1

1. Various countries has various accounting standrads which use to prepare finacial accounts, taxation, income statement of home country. There are different accounting standards have been made by different countries like IAS, GAAP etc

Due to different accounting standards some the multinational comapnies like Five Star enterprises facing some diificulties by preparing the finacial statement twice with regional accounting standards and international aacounting standards. This does not give the true picture of finacial statement.

To overcome these difficulties the manager gives the feedback in the support of harmonisation

Harmonisation of accounting standards

Harmonisation is the process in which brings all the accounting system together with some part of agreement so that financial statement from different countries can be prepared with common set of accounting principles.

Company manager can use the International Financial Reporting Standards (IFRS) which is estabilish by the International Accounting Standards Board (IASB) because this accounting standards were made to bring Harmonisation in accounting.

1. Globalization of Capital Markets: Globalization of capital market help the investors to draw comparision between the companies after knowing the market position of that particular company.

2. Increasing number of investors: From the viewpoint of the users of accounting and financial information, the investors who are willing to invest cross borders, can invest directly in the part of a portfolio of funds.

3. Increase the transparancy of financial accounts: There will be transparency in disclosure of finanancial accounts. Company will prepare the statements as per IFRS accounting standards, this will gives the true result of financial statement without commit errors.

4. Consolidate of accounts : Multiple reporting requirements are vinished with the help of harmonisation, which involves direct costs such as, data collection, and auditing.

5. Increase the efficiency in stock markets integrate figures in their prices because company now issue new share across border ultimately increase in investors world wide.

Challenges faced by Five Star enterprises

Currency fulctuations

The currency of every country may fulactuate with change in time. This is also create problem and error in making financial satement of company. For example if the US multinational company having the profit of $10 then it will bw incurred loss in UK. So the Five Star enterprises are facing problem in posting currency items with the loss of its fulactuations.

Cost calculation and global pricing strategy

Cost calculation is the another challenge which can be face by company. The cost like costs of labor, production cost, material cost and overhead cost may vary from country to country which will create problem in making the cost of product. For example , if the cost of product $10 in US and it will be less in UK. this how company will incure less cost from UK.

Universal payment methods

Accepting online transaction & transfers world wide , PayPal payments, and Bitcoin, these are the some online payment window help the customer to pay online. Bitcoin users benefiting from no bank or credit card transaction fees. Despite the risk of fluctuating value, the lack of fees is one of the reasons a number of companies incurre low profit

Communication and cultural differences

communication is one of biggest challenge that every multinational company may face, For example manager of Oman based company may confuse or miscommunicate while communicating with other manager who managing the company in German. The comunication is also berrier of mulinational company.

Different accounting standards

How these challenges can be avoided in future ?

Through Hedging: The company the mitigate the currency risk by engaging in hedging.

Currency translations: They can translate all the currency used by the parent company in its home country. This will minimize the loss and risk of making financial reports.

Universal accounting standards: Company must use universal accounting standard tha will help to minimize the fraud chances and maintain the company reputation.

Niche market should be opt for selling and purchasing products in different countries