4. Discuss the issues and recent developments relevant to auditing social corporate
responsibility reporting. Provide your opinion (with support) on the extent US
companies and audit firms should engage in social corporate responsibility reporting.
Social corporate responsibility reports usually contain information on issues pertaining to the environment, human rights, safety, supply chain, and other social concerns. (McCuaig, 2006) These are public documents reported to non economic stakeholders, whose primary interests go beyond corporate money making and whose knowledge about the corporations are just fulfilled by the usual financial and regulatory reports. Thus, these reports sometimes come as a separate report while for other companies; it is attached to the annual corporate report.
This type of reporting has become popular nowadays. Corporations are looking for emerging assurance standards to direct different opinions on corporate responsibility reporting. (McCuaig, 2006) Social corporate responsibility reporting, specifically on the aspects of compliance, internal control and governance is just new. Hence, its framework for reporting is not yet refined and standardized. The determination of what should be reported and the enhanced roles of internal auditors are also part of the issues with regards to this matter.
At present, there are two main standards for this type of reporting and these are: the International Standards on Assurance Engagements (ISAE 3000) and the AA100 Assurance Standard (AA100AS). These two both aim to guide external auditors in giving an audit opinion on this type of reports. One major issue for the social corporate responsibility reporting is the role of the internal auditor. These professionals have the golden opportunity to both guide these standards and to develop proper standards for internal auditors in reviewing such reports.
I believe that US companies should completely submit their social corporate responsibility reports. For the internal auditors, there are two very important and relevant reasons for social corporate responsibility reporting. Initially, the techniques and the devices utilized by fellow auditors may prove equally useful to upgrading the quality and quantity of data available to the company’s stakeholders about issues on financial statements, compliance and governance. Also, as social corporate responsibility reporting rises, new and proper standards of assurance will be implemented and various internal auditing services will be required. (McCuaig, 2006)
It is very important for the companies to assert their audits on important global issues like human rights, ecological compliance and supply chain management. These reports must be audited and publicized. In this case, the role of internal auditors have to be modified so that they can support the various US companies in their development of the required standards in delivering well written assurance reports.
I also think that social corporate responsibility reporting is also enhancing the corporate value, image and the reputation of the US companies, especially the multinational and global ones. Multinationals companies like Nike, Coca Cola, Gap, etc. have been good examples of how the social responsibility of companies can be detrimental to their growth and returns. Good reporting is crucial to their improved image especially to their stakeholders’ expectations. I think that for global companies, their value and image is always attached with their social responsibility and the way that the companies report their involvement in these aspects is very significant. Companies with good codes of social responsibility often always perform well in terms of income, its employment and its overall organization. (Fraser, 2005) This type of reporting is also timely in the advent of the proliferation of various conferences, movement and organizations. It is a sort of a corporate defense for companies as expectations on their processes of business have increased.
7. Discuss why and how the approach taken by ASEAN members towards harmonization
of financial reporting contrasts the one taken by members of the EU. Illustrate with
members of the ASEAN.
When various countries agree to integrate their economies, various institutional mechanisms have to be agreed upon and created so that the divergence among these different economies can be addressed. Some of these solidarity mechanisms will be favorable for certain types of the intended economic integration while some can be more generally applied. (Choi & Meek, 2011) The international harmonization of financial reporting and generally, the accounting standards is a great process to brings various international Accounting Standards into a defined form of agreement geared towards achieving a common set of Accounting principles. (Choi & Meek, 2011)
The primary level of economic integration is attained when countries come to an agreement in terms of a creation of a free trade area (FTA). In this agreement, import tariffs on each country’s products are removed, with member countries retaining only their specific systems of tariff duties on products from those not covered by their memberships. The ultimate level of economic integration is achieved through the establishment of an economic union. This is characterized by a common market and the unification of economic agencies and the coordination of economic policies among member countries. (Choi & Meek, 2011)
In such agreements, the European Union (EU) can be described as a half-fledged economic union, even when it has a unified monetary system since 2000. This is because member states maintain their sovereignty over several economic policies. Cuyvers (2002) described the EU as “somewhat more than halfway between a common market and an economic union.” In terms of accounting standards, some 7,000 European companies use the International Accounting Standards (IAS) in the EU since 2005. (Cuyvers, 2002)
Meanwhile, the ASEAN is described by its being an FTA with several policies to liberalize intra-regional investment flows. For instance, the Asean Free Trade Agreement (AFTA) aims to liberalize inter-ASEAN trade and to enhance regional investments as of 1992. While AFTA can be described as the lowest level of economic integration in the region, its commitments can also be described through a more general framework of “open regionalism” system as applied by the Asia Pacific Economic Co-operation (APEC). In this respect, liberalization of trade and investments are crucial. (Cuyvers, 2002)
In the EU, policy instruments such as the Structural Funds are used to reduce regional disparities between member states and future member states. Meanwhile, in the ASEAN, sub-regional cooperation is used as a major instrument for convergence and “sub-regional” development. ASEAN promotes the further development and implementation of “growth areas” with the intention of narrowing the gap in the development levels among member states and to reduce poverty and socio-economic gaps in the Southeast Asian region. (Cuyvers, 2002)
Countries in Asia have been identified with the use of the IAS. However, there have been little publications on the difficulties they met in adopting these international accounting standards. For instance, Taiwan initially based its accounting standards on those of US GAAP as the main reference for creating its own accounting standards. However, in 1996, this Asian country publicly declared its move towards international accounting standards. It has substantially focused on harmonizing its standards with those of other countries. In contrast, when the IAS has been implemented close to UK GAAP, there remained “a surprising number of differences.” Major factors in the divergence of their accounting reporting can be attributed to their legal systems, national culture, tax systems, accounting professional agency, among others. (Cuyvers, 2002)
8. Discuss the various factors a multinational company (MNC) must consider in the
establishment of a management accounting information system across national borders.
Outline the various approaches MNCs take to address the factors identified.
Multinational companies (MNCs) overcome national borders and expand their businesses for several reasons. Major factors in their operations include their cross-border operations and their adoptions of a variety of organizational structures. These factors can affect the strategies they will implement, including their financial strategies and options. (Choi & Meek, 2011)
In managing an accounting information system across national borders, IT infrastructure and maintenance are crucial. Specific factors must be resolved and these include:
The problems with scheduling and coordination. For instance, a business which go beyond four time zones has 5 business hours that need to be fully supported by all of its operation, while one spanning more than eight time zones would have no common business hours at all. This shift in schedules can result in increased reliance on background transfers of information (such as e-mail), which do not require human interaction in real time.
Data dispersion to reduce transmission costs, a strategy which can lead to the loss of information control and increased security risks.
The existing legislation with regards to computer privacy and security, software licensing, and copyrights remains fundmanetally fragmented among nations. This is another crucial issue in managing accounting information system.
Langugae can also cause problems with the expansion into other nations. Global IS should be designed to provide support for international languages. Data entry and reporting programs should also be written to accommodate different alphabets, printing directions and the sequences in collating. For instance, in some nations, pages are ordered from right to left.
The communication infrastructure in the local country must also be very well considered and financed. The local technical support in each country of operations must also be studied.
Roche (1996) specified various approaches which the MNCs must implement and these include the following:
MNCs must decide on performance evaluation measures. While MNCs usually use several financiala nd non financial measures, they must use financial measures of performance and profit-based measures.
MNCs must decide whether their foreign operations will be assessed as an investment center, a profit center, or a cost center. Some foreign operations may be intended for a strategic purpose other than to generate profit and it must be evaluated differently.
MNCs must also decide if their foreign operating unit and the executives under these units must be assessed in the uniform manner, or if they will be assessed distinctly using different performance measures. Responsibility accounting proposes that executives must not be accounted for uncontrollable items. For foreign executives, this comprises of incomes and expenses managed by the parent company, the national government and others.
For those foreign operations assessed according to profitability, the MNCs should decide if the profits will be evaluated in local or parent currency. Most MNCs measure the performance of their foreign operations in parent currency, which requires translating from the local currency to the parent currency. The MNCs should decide if the local manager will be given this sole responsibility of translating adjustments.
If the MNCs’ performances are assessed by comparing budgeted results to actual results in parent currency, differences in exchange rates can be avoided through the uniform use of the same exchange rate translating the budget and actual results.
Management control systems should also be keen to the national cultures to which local executives belong. Cultural awareness is required when imposing a system designed for human resource management since a specific method of implementation may not be successful across all cultures.
References:
Choi, Frederick & Meek, Gary. (2011). International Accounting, 7th ed. London: Prentice Hall.
Cuyvers, Prof. Dr. Ludo. (November 2002). Contrasting the European and Asean Integration and Solidarity. Fourth EU-ASEAN Think Tank Dialogue “EU and ASEAN – Integration and Solidarity” European Parliament. Retrieved on June 30, 2012 from, https://docs.google.com/viewer?a=v&q=cache:5QUCvsXO9ucJ:www.eias.org/conferences/euaseam4/euaseamcuyvers.pdf+approach+taken+by+ASEAN+members+towards+harmonization+of+financial+reporting&hl=fil&gl=ph&pid=bl&srcid=ADGEEShE70qyyHhu_JeO5AzjD4qBSJOADCmFFoMMocnUitJ8GKo8y2KLxVEfA3-pp4IaZB0E1OEL0QzovcRZp9shfjKF8n_psIrtQVe9I9h3a3i8QA1maeKt2XQPfMZ6uNJqglKnN8Mz&sig=AHIEtbR_woR1u4gEEYC_-N8RBYa50X5iUg.
Fraser, Bruce W. (2005). Corporate Social Responsibility. Internal Auditor. Web. Retrieved on June 30, 2012 from, http://www.theiia.org/intAuditor/in-the-profession/2011/corporate-social-responsibility/.
McCuaig, Bruce. (April, 2006). A Case for Responsible Reporting. Internal Auditor. Web. Retrieved on June 30, 2012 from, http://www.theiia.org/intAuditor/feature-articles/2006/april/a-case-for-responsible-reporting/.
Roche, Edward Mosley. (1996). Multinational Corporations – the Emerging Research Agenda. Journal of Strategic Information Systems, 5. pp. 129-147.
