INTERNATIONAL ACCOUNTING AND FINANCE ISSUES
QUESTION 1
Sustainability accounting and reporting issues
INTRODUCTION
The pressure has increased for the companies to take account of their environmental and social impact, which is mainly due to sustainability accounting reporting guidelines proliferation. The triple bottom line examines the financial impact, social and environmental impact of a company. TBL is always reported as corporate social responsibility (CSR) activities and standardized in the United Nation (U.N.) Global Compact, the OECD Guidelines for Multinational Enterprises, and the Global Reporting Initiative (GRI), we will be discussing issues that have brought a lot of debate about Sustainability accounting and reporting.
Discussion
Enforcement- since sustainability accounting is voluntary, any company that does not do it won’t be penalized by any authority. In case of any misstatement by the company that practices sustainability accounting and report they won’t be questioned or even sanctioned, but instead, the probability of the distortion happening is very less since the framework can be developed by the company itself (Burritt and Schaltegger, 2010).
Effect on compatibility and reliability- concerning categories, it is evident that there is enormous diversity, decision rules, measurement approaches and even definitions, comparability understanding of the accumulation of knowledge and findings.
Standardization – there are many approaches associated with sustainability reporting guidelines. This causes a lack of compatibility and uniformity all over the company. The standards should also focus on stratifying performance by the company apart from the overall suitability performance of the company. The one size fits all approaches to sustainability reporting is not favourable to a diverse economy.
Compliance- The method of compliance and certification has faced criticism. Even though the requirements with guidance for use are provided by the ISO 14001, the specific performance requirements are not provided by international standard on the environmental management system. The other issue with compliance is that the third-party attestation is not required because financial sustainability accounting reporting is voluntary (Lodhia and Hess, 2014).
Motivation- it is very unclear when it comes to desire and motivation. Similarity pressure where one actor within a population to copy other actors are kept in three categories, and this is mimetic, coercive and normative. When adopting the sustainability reporting framework, most companies become swayed by mimetic, coercive and normative. Normative and mimetic becomes a peer pressure to the companies.
Disclosure and measurements- there is inconsistent measurement because the definition is not contradictory. To quantify and measure the social responsibility of sustainability is the most challenging. The duality exists between its actual use incorporation and stated aims (Schaltegger and Burritt, 2006).
Conclusion
Despite sustainability accounting reporting improvement, the effectiveness of sustainability accounting reporting has a lack of enough support and research. The best sustainability accounting reporting must be the first thing to start with for the exposure of the extent to which the capability scenario of doomsday is worth our attention.
QUESTION 2
Global accounting Issues
INTRODUCTION
Doing the business from different places is one sign of high achievement, management of business from different location might be very hard. And these reasons make it essential for the use of human resources, time management and financial resources to make sure there is the smooth functioning of the business. It takes too much energy to align the stakeholders who are divided by the national boundaries, cultures and language so that you can achieve the primary goal of the business. And therefore, this has posted a lot of issues that will be discussed in this paper.
Discussion
- Countries have different local regulations- there is a variation of generally accepted accounting principle (GAAP) from one country to another. For example AS, GAAP, U.S., SFRS and IFRS; there is no single universally-accepted reporting standard. There is variation in the regulation related to accounting, and this are taxation, legal matters and many more, this brings a lot of impact to the accounting and also the companies profitability’s that are operating from different countries (Joshi et al., 2008).
2.Consolidation of Entities in A Group– individual entity accounts need to be kept constant according to the laws and the accounting standards of the operational country. Besides, due to different currency rate continuous fluctuation. It is significant to make sure that foreign exchange is applied appropriately for the converting and evaluation of the respective local currency amounts into the reporting currency.
- Calculation of impairment of investment in subsidiaries: overseas investment subsidies is a standard event at Multinational Corporation. Monitoring of the damage of investment in grants is very significant, more so in the entities that are making losses are in unreachable nations or locations with a hard political plot; until the investment is recovered by subsidiary made by the company belongings (Wagenhofer, 2009).
Intercompany Cost Allocations and Transfer Pricing- when the prices of services and goods are fixed between entities that are related is called Transfer Pricing (T.P.), within entities groups. For example, if the services and products are sold by the subsidiary to the parent company, the services/goods consideration paid by the mother to the subsidiary is the T.P. The results of the T.P. can be used as a profit allocation method to assign the corporation that is the multinational net profit or the loss before tax calculation to the countries where the business is being done (Guthrie and Parker, 2014 ).
CONCLUSION
It is evident that most companies are facing challenges globally, one of them being that every country worldwide have different local regulation, and hence making GAAP vary from one state to another. We have countries that have a different type of taxation, and this will create an impact on the profitability of a company that is operating from a different part of the globe. The other challenge is that the accounts of each entity must follow the laws of the country that is working.
QUESTION 3
Foreign Exchange Issues
INTRODUCTION
In the past few months, foreign exchange market vitality has been witnessed by the investors, this all has been brought due to political instability, and the economic short comes.
Discussion
Complex Payment schedule- there is a sophisticated payment schedule that exporters and importers face. Whether your business sells its products directly to consumers or as a wholesale operation, its likely accepting payments in one currency and making payment in another. You can different type of coins that are involved in your business and any given time. For the right vendors to get the correct mortgage, many exporters and importers have to work with a Global F.X. specialist. This will help them in the management of their money.
Currency vitality management – there is an excellent shift in the currency; it would be easy for your business to lose each transaction if your business keeps accepting export and imports. Making the dollar is not only the only thing involved when managing currency risk, but also hedging against that fluctuation in the market. To get your business ahead of the unfavourable valuation of the currency, you have to keep tracking the global exchange market.
Marking cost-effective payments- from the market order to forward money there is no shortage of financial tools, and everything in between is to secure export and import business like yours manage their global payments and get the most out of the currency market. With so many suppliers and vendors, your business has a probably of sending money to many payees every month (Terada-Hagiwara, 2004).
Financing issues
This is where the company has a financing issue in U.S. dollars, while the costs and incomes are used in another currency, and this will lead to funding issues. It is of considerable significance to the type of debt and schedules the bonds. It can be deadly for the bullet-type about rapid currency moves if the company is not well hedged.
Entire output/input mismatched
Forex issues continue across the cost form. Picture an oil rig that is making its sells to a market that is dominated with the dollar, but uses another currency to pay off its workers and also buying of the machines. Any move of the currency will entirely impact of the business model.
Variable incorporation costs– providing on the structure of your business and the industry you are serving, the sales and expenses you make could be aligned to different commodity markets. That will the addition of another complex layer when it comes to global payment management. And that means exporters and the imports have to pay taxes to different nations and places and the currencies in which those payments are supposed to be made.
CONCLUSION
Outlining which foreign exchange risk could impact mots is very hard, but in the case described above, it can be said that the chances are material. The foreign currency is highly volatile, and therefore investors should be and remain wary.
QUESTION 4
INTERNATIONAL CAPITAL BUDGETING ISSUES
INTRODUCTION
Capital budgeting is hardly an exact science. If it were, companies would never make lousy decisions about product development, expansions, equipment upgrades, and other capital projects. The truth that most companies make this kind of mistake point to the issues of capital hedging.
Time Horizon- as we keep moving in the future, the cash flow prediction keep becoming very difficult. In any prediction that comes are only based on the things you make now. As the time horizon of the project keeps increasing, the likeness arose between the time you start and the befits are expected, and the very disruptive events will cause changes in the operating environment. The success of your project can be affected by the competition that cannot be seen, and this is regulatory and technological changes. And during the capital hedging, it might make it very difficult to be considered (Khamees et al., 2010).
Cash Flows- The most significant capital budgeting step is also the most difficult to get right: cash flows prediction a project will produce. The process of deciding if the increase in project revenue justifies the required investment, but your best estimate is the future revenue; this all means is called capital budgeting. Even up-front costs, which are more immediate and, therefore, more comfortable to forecast, are still the estimates at this stage. Underestimate costs or overestimate revenue and the project that seems to appealing could bring losses. Overestimate costs or underestimate income, and this might cause you not to accept the project that would have proved profitable
Time Value- The payback period is one of the most used methods, mostly in a small business. It merely requires that a project predicts that the investment is being repaid by cash flow within a set amount of time; let say you only need a payback within five years.in upfront cost, a project has $45,000. It estimates a cash flow of $10,000 a year of five years; the project meets your criteria. The time value of money is not accounted for by the project- the truth sums of money equal at different points in time have different values based on several factors. If a 4% annual interest was used to borrow the funds from the project, for example, the money will be lost, and inflation would add losses on top of that.
CONCLUSION
Time value, time horizon and cash flow can affect the capital budgeting, it is very evident that projects always don’t the time value of money, and we also see that changes in technology and the regulatory can cause changes in the success of your project because you might expect to finish the project so early. It fails that might bring problems too.
References
Burritt, R.L. and Schaltegger, S., 2010. Sustainability accounting and reporting: fad or trend?. Accounting, Auditing & Accountability Journal.
Lodhia, S. and Hess, N., 2014. Sustainability accounting and reporting in the mining industry: current literature and directions for future research. Journal of Cleaner Production, 84, pp.43-50.
Schaltegger, S. and Burritt, R.L., 2006. Corporate sustainability accounting: a nightmare or a dream coming true?. Business Strategy and the Environment, 15(5), pp.293-295.
Joshi, P.L., Bremser, W.G. and Al-Ajmi, J., 2008. Perceptions of accounting professionals in the adoption and implementation of a single set of global accounting standards: Evidence from Bahrain. Advances in Accounting, 24(1), pp.41-48.
Guthrie, J. and Parker, L.D., 2014. The global accounting academic: what counts!. Accounting, Auditing & Accountability Journal.
Wagenhofer, A., 2009. Global accounting standards: reality and ambitions. Accounting Research Journal.
Terada-Hagiwara, A., 2004. Foreign exchange reserves, exchange rate regimes, and monetary policy: Issues in Asia (No. 61). ERD Working Paper Series.
Khamees, B.A., Al‐Fayoumi, N. and Al‐Thuneibat, A.A., 2010. Capital budgeting practices in the Jordanian industrial corporations. International journal of commerce and management.