accounting
ACCOUNTING STANDARDS 2
Complications of operating global business Comment by Microsoft Office User: Should be in letter format
Expanding business internationally by Emerson manufacturing company means expanding the corporates overseas by reaching new consumers or clients and potentially boosting the level of proceeds. Despite the fact that international businesses are thriving so well expanding business to overseas is faced by numerous challenges, complexities and complications which include;
Emerson is likely to be faced by the challenge of international company structure which is related structure of the international company and the location of the crews. For example, where will the company operate from, will it have one central head-quarters, will the manufacturing company have office representatives in every area where it is located. To the markets where the company is recently erected how will the teams be organized. The management of the company has also a challenge in deciding on if to hire the local experts of the parent company in the new markets or hire new experts in the new markets.
There is a challenge related to foreign laws and regulations in the emerging markets. Companies like China and Japan have different laws and regulations in the business markets which should be highly considered when setting up markets. Different countries have different tax implications and trading laws which could affect where the business has been established. It is a challenge navigating through the legal requirements. This involves eligibility to trade being one of the considerations having potential tariffs and the legal costs that are related to entering new markets. Further, different countries use different accounting standards which could cause challenges in preparing the financial statements.
Ethical consideration
As the organization grows internationally it is important that the business not only concentrates on the vision, mission, objectives and organizational goals of the company but also ethical considerations. It is important to take note of the ethical considerations in decision making and handling of challenges. Examples of ethical issues that should be put into consideration include;
Manufacturing trash pollution which is an ethical consideration since pollution is a complex environmental issue across the globe where the businesses have been established. Additionally, the by products produced by the manufacturing company should also be an ethical consideration when operating globally. This involves considerations like does the company produce plastic or carbon emission into the atmosphere? The company should not only focus on profit margins of the company. The manufacturing company should also consider social cultural impacts on how the business is influencing the change of norms in the community, (Bianchini, 2014).
Further, issues like wages and benefits affect ethical considerations of the international trading of a company. For instance, textile industries always search for employees who will accept low wage rates. Employing workers at a low rate insinuates importing the products at a significant markup which is ethically not right. Emerson should work on providing safe working conditions in all their international branch companies in various countries around the globe. This involves following occupational health safety administration, every worker should be given the best working environment according to regulations of the country in which the manufacturing company has been situated. For instance, Spain and India the target countries for Emerson manufacturing company.
Is IFRS similar to GAAP
IFRS and US GAAP refers to standards that govern financial reporting of given companies. The financial reporting practices are set by the financial accounting standards and organized within a framework of the generally acceptable accounting principles GAAP. International financial reporting standards refers to set of international accounting standards which states how particular type of events should be reported in financial statements. IFRS are made by international accounting standards board and show exactly how accountants should maintain and was established so that common accounting language could be enhanced this makes it possible to understand business accounts from company to company and from one country to another. Comment by Microsoft Office User: How a particular Comment by Microsoft Office User: is
On the other hand, GAAP addresses issues like revenue recognition, balance sheet, item classification, outstanding share measurements. All financial statements should be prepared through use of GAAP to ensure investors trust the financial statement. Therefore, IFRS and US GAAP are not the same as they illustrate different mechanisms of accounting. GAAP is rule based while IFRS is principle based and gives much lesser details than the former and give room for lengthy discussions and interpretations for the financial statements.
For instance, both standards treat inventory differently in the financial statements. IFRS rules do not allow the use of LIFO methods for financial standards while GAAP give room for use of LIFO when dealing with inventory though both of them allow the use of FIFO and weighted average. Further, GAAP does not allow for inventory reversals while IFRS gives room for inventory reversals under certain times.
What are IFRS and who determines IFRS Comment by Microsoft Office User: this part is really thorough, great job!
IFRS are set rules and standards that have to be followed so that financial statement can be consistent, transparent and comparable around the globe. IFRS are issued and determined by international Accounting Standards Bord, (IASB). There exists a standard process for setting standards to be part of IFRS which can be described as follows;
The initial stage involves agenda consultation which is done within a duration of five years. Research programme which entails identification of the probable financial reporting complications by collecting indication on the nature and extent of the perceived short-comings and assessing better ways to improve on financial reporting. Secondly, the board develops a proposal for publication which is done through exposure draft which is issued to the public for consultation and the IASB board could take other outreach activities like meetings, discussion forums, webcasts and podcasts and roundtable meetings, (Gray, 2019).
Third step of IASB process of setting standards involves redeliberation and finalization which involves determining the constituent feedback from the consultation process. Sometimes IASB decides to re-expose the proposals before turning to the finalization stage. Once the deliberations have been done the IASB staff prepares the final standard for balloting and voting by the board. The process could also include a review draft of the final pronouncement. Further, post-implementation reviews for each new standard which is usually done after two years after the effective date of pronouncement.
One area where IFRS differs from GAAP
IFRS differs from GAAP in different ways which involve the manner in which inventory is handled. IFRS bans the use of LIFO in inventory accounting methods while GAAP methods allow use of LIFO in accounting for inventory methods. Additionally, IFRS allows reversal of write-down inventory. The two accounting standards also have different definitions for discontinued operations. According to IFRS discontinued operations represent the company’s assets which have been disposed or held for sale, it also represents different lines of business and equity method can be used to classify as held for sale which does not apply according to GAAP rules in accounting standards, (Sedki et al., 2012).
According to GAAP intangible assets acquired are classified as fair value. Discontinued operations represent strategic shifts that have a major impact on the organization’s operations and the financial results reported. IFRS and GAAP are different in the manner in which they prepare balance sheet. According to USGAAP current assets always start while according to IFRS non-current assets always hence they have different approaches when it comes to preparation of balance sheet. Additionally, the cashflow financial statements are differently classified. Both interests paid and received are classified as operating activities in GAAP while in IFRS it depends on the willingness of the company operating.
convergence
Convergence of accounting standards refers to the goal of a single set of accounting standards to be used internationally. In US it was laid up in 2006 to eliminate differences between GAAP and IFRS. Motivation for convergence includes belief that it will increase compatibility between the accounting standards, (Bandyopadhyay et al., 2012). Comment by Microsoft Office User: Could expand on this a bit. What is the impact on companies? (good or bad)
Reference
Sedki, S. S., Smith, A., & Strickland, A. (2014). Differences and similarities between IFRS and GAAP on inventory, revenue recognition and consolidated financial statements. Journal of Accounting and Finance, 14(2), 120.
Gray, D. E. (2019). Doing research in the business world. Sage.
Bianchini, D., & Avila, I. (2014). Smart cities and their smart decisions: Ethical considerations. IEEE Technology and Society magazine, 33(1), 34-40.