multinational corporations and financial accounting framework

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