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.
a. 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?
b. 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 futur

Answer 1

Part - A:

As a country manager, my feedback would be there should be a harmonised system of reporting across the globe.

For solving this type of problem, many of the country's are adopting International Financial Reporting Standards(IFRS),

in their respective countries directly or they adopting the IFRS into their accounting standrads with some Carve-in's 7 Carve-Out's. For Example India has adopted IND- AS which will match with IFRS reporting with some changes.

So, as the company is Operating in different countries, only one set of standards to be followed for their ease of reporting & another set of financials with local standards.

Part - B:

Challenges faced by Five Star Enterprises are:

• Consolidation of Financial statements of different Countries into one set of Financial statements.
• Foreign Currency Translation while consolidation
• Identifaction of Functional Currency & Reporting Currency

Precautions for the Challenges mentioned:

• The divisional countries has to prepare two set of financials as per local standards & as per IFRS
• The divisions has already translated the currency into the reporting currency before Head office does.