Bài giảng môn Kế toán, kiểm toán - Chapter 13: strategic accounting issues in multinational corporations

Learning Objectives

Explain the role played by accounting in formulating multinational business strategy.

Demonstrate an understanding of multinational capital budgeting.

Describe the factors that influence strategy implementation within a multinational corporation.

 

 

 

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Chapter 13: Strategic Accounting Issues in Multinational Corporations Learning ObjectivesExplain the role played by accounting in formulating multinational business strategy.Demonstrate an understanding of multinational capital budgeting.Describe the factors that influence strategy implementation within a multinational corporation.13-2Learning ObjectivesDiscuss the role of accounting in implementing multinational business strategy.Identify issues involved in the design and implementation of an effective performance evaluation system within a multinational corporation.Explain the impact of cultural diversity on strategic accounting issues within a multinational corporation.13-3StrategyLarge scale plans Reflect future direction CategoriesStrategy formulationDetermining organizational goals Strategies to achieve goalsStrategy implementation Managerial efforts Attain organizational goalsPerformance evaluation Extent of goals achievedAccounting Significant role Strategy formulation Implementation13-4EXHIBIT 13.1 Strategy formulation13-5Strategy FormulationAnalysis of information Internal factorsCulture, skills and know-howExternal FactorsCustomer, market, and competitor Regulatory, social, and political factors Financial expressions Firm strategy Preparation of budgetsCapital budgeting Important part of strategy formulation13-6BudgetingPrimary contribution of accountingAssists in strategy formulationInformation to managers Short-term responsibilitiesLong-term planning responsibilitiesProvides future expectations Future results can be judged13-7Capital BudgetingKey activity in selecting capital investmentsCapital investmentsInvolve large amount of resourcesCost and benefit over large periods of timeThree stepsProject identification and definition, Evaluation and selectionMonitoring and review13-8Capital budgeting techniquesFour techniquesPayback periodReturn on investmentNet present valueInternal rate of return13-9Payback periodLength of time Recoupment of initial investmentKnowledge requiredInitial investment amount Annual after-tax cash flowsProject accepted Payback period within predetermined lengthPrimary weaknesses Ignores time value of moneyIgnores total profitability of project13-10 Return on investment Average annual return On initial investmentEqualsAverage annual net income divided byInitial investmentProject accepted if Return on investment over predetermined ratePrimary weaknesses Ignores time value of moneyIgnores possible cash outlays subsequent to initial investment13-11Net present valuePresent value of net future cash flows lessThe initial investmentRequiresEstimate of minimum rate of return Used as discount rateProject accepted ifNet present value is equal to or greater than zeroPrimary weaknesses Not used for comparing projects Of different sizes Biased toward large investments13-12 Internal rate of return Discount rate Causes net present value of future cash flows to equal Initial investmentResults in zero net present value Project accepted ifIRR more than desired rate of returnPrimary weaknesses Requires unrealistic reinvestment assumptionsDifficult manual calculation 13-13Multinational Capital BudgetingRequiresInitial investment requiredEstimated future cash flowsDiscount rate for present valuesComplicated factorsRisk associated with future cash flowsPolitical riskEconomic riskFinancial riskTaxes, import dutiesDividend restrictionsCash flow limitations imposed by governments13-14Political RiskPolitical events impact cash flowsExtreme form Nationalization Expropriation of assetsChanges in foreign exchange controlsRepatriation restrictionsTax rulesLabor lawsVaries significantly from one country to another13-15Economic RiskImpact on cash flows Host country economy changes InflationMost significant riskAffects local population’s purchasing power Impacts business’s overall cost structureCosts associated with Manager time Effort to respond to inflation13-16Financial RiskImpact on cash flows Changes in currency valuesInterest ratesOther financial factorsForeign exchange risk Important component of financial riskForeign exchange risk affectsEvaluation of project based on Host country cash flows Parent country cash flows 13-17Evaluation of foreign projectFactors consideredProject perspectiveTaxesRate of inflationPolitical riskParent company perspectiveForm of cash remittance to parent companyExpected changes in exchange rateOver project lifePolitical risk13-18EXHIBIT 13.4 Framework for Strategy Implementation13-19 Management control PlanningEffectively implements strategyCoordinating organization activitiesCommunicating with organizational membersInformation Evaluating Action decision Influencing organizational members Change their behavior Consistent with organization’s strategyImportant issueDelegation of decision-making authority13-20 Management control Factors influencing effective control systemOrganizational structureStrategic role assigned to subsidiariesForms of organizational structures EthnocentricAssumes universal cultural background of firmPolycentricHost country culture is important and adoptedGeocentricSynergy of ideas of different countries13-21Operational BudgetingExpresses long-term strategy within shorter time framesProvides mechanisms toTranslate organizational goals in financial termsAssign responsibilitiesAssign scarce resourcesMonitor actual performanceTargets to achieve13-22Exhibit 13.6—Influences Affecting the Operating Environment of Subsidiaries in Foreign Countries13-23Performance EvaluationMajor aspects for evaluating foreign operationsPerformance evaluating measuresClassification of foreign operationsCostProfitInvestment centerIssuesEvaluation of the foreign operation Evaluation of manager of operationThe profit measurement method13-24Performance evaluation measuresFinancial criteriaMeasures based directly on financial statement dataNet profitReturn on investmentComparison of budgeted to actual profitNonfinancial criteria Measures not based directly on financial statementsMarket shareRelationship with host country governmentLabor turnover13-25Performance evaluationBalanced scorecardBalanced consideration toFinancial Nonfinancial measuresFour perspectivesFinancial perspective Customer perspectivesInternal business process perspectiveInnovation and learning perspectives13-26EXHIBIT 13.12—Basic Model of a Balanced Scorecard Performance System13-27Responsibility centersForeign affiliate held accountable asCost centers Produce output using available resourcesProfit centers Responsible for costs and revenuesInvestment centers Responsibilities of profit center plus Responsibility for investment decisionsReturn on investment (ROI) Most common performance measure13-28Separating managerial and unit performanceSeparating performance evaluation Managerial performanceUnit performance Uncontrollable itemsLocal manager has no controlNo permission to manageControlled by the parent The host governmentControlled by othersResponsibility accounting Managers not accountable For uncontrollable items13-29Uncontrollable itemsControlled by the parent companySales and cost Determined by transfer pricingAllocation of corporate expensesInterest expenseControlled by the host governmentForeign exchange spending restrictionsPrice controlsLocal content lawsControlled by othersLabor strikesForeign exchange lossPower outragesWar, riots, and terrorism13-30Choice of currency in measuring profitProfit measured in Local currency Subsidiary not paying parent currency dividendsParent currencySubsidiary paying parent currency dividendsChoice of a translation methodWhether translation adjustment included in profit13-31Foreign Currency TranslationTranslation for internal purposesFinancial accounting standards not followedFactor influencing translation adjustment in the profitAdjustment reflects the impact of change in rates on parent currency cash flowsLocal manager has authority to hedge translation exposure13-32 Choice of currency in operational budgeting Operational budgets Include budget-to-actual comparisonsIf actual compared to budget In local currencyFunctions of overall budget variance Sales volume varianceLocal currency price variancesIn parent currencyFunctions of overall budget variance Change in exchange ratesSales volume varianceLocal currency price variancesExchange rates Actual at time of budgetProjected at time of budgetActual at end of budget period13-33EXHIBIT 13.17—Combinations for translation of budget and actual results13-34Implementing performance evaluationSuccess of system depends on Integration of system and business strategyFeedback and reviewComprehensive measures Ownership and support throughout organization Fair and achievable measures Simple, clear, and understandable system13-35Culture and management controlObjectives Influence human behaviorPeople in different cultures React differently to control systems Japan more collectivist society than the United StatesCulture affects Management styleCapital budgeting decisions Short vs. long payback13-36End of Chapter 1313-37

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