Question

Over the last 50 years the financial reporting systems have dramatically changed and will continue to change as the financial world faces changes such as globalization, changing regulations and the increased use of technology. The accounting profession must be ready to not only face these changes but to also adapt to them, providing relevant and reliable information to the many internal and external users of financial and managerial accounting reports.

It is important to understand the difference between managerial and financial accounting reports.

You are the chief executive officer of a multinational corporation that operates wholly owned subsidiaries in several countries. One of the company’s manufacturing plants is located in Europe. As CEO, respond to the following questions in 400-600 words:

What types of internal and external accounting reports will you use in the process of making decisions?

How will the reports differ for a multi-national corporation?

Answer 1

The following are the various types of internal and external accounting reports which i would use as CEO in the process of making decisions:

1. Balance Sheet

2. Income Statement

3. Budget reports

4. Account Receivable Aging Reports

5. Cost Managerial Accounting Reports - Inventory and manufacturing process related

6. Performance Reports

7. Job cost reports

For a multi-national corporation, the reports will differ because of the fact thtat it operates wholly owned subsidiaries in several countries and every country has few standardised accounting reports available as per the prevalent accounting systems used for e.g. SAP, Oracle etc.

Regulatory interventions/changes impact financial reporting and thus play a significant role on the international comparability/usage of financial statements and as a result on investment decisions. I will explain here about the effects of financial reporting practices on the cost of equity capital. The cost of equity capital is directly linked to internal or external investment decisions. Further, the following needs to be analysed for a MNC to analyse the effect of financial reporting practices on investment decisions:

1. Earnings management

2. Information asymmetry

3. Accounting quality of various reports

4. Information environment

5. Investment efficiency

6. Overinvestment-underinvestment and cash flow sensitivity