Accounting and Recording
Summary
Financial accounting and reporting is a mode of communication used by different companies to communicate with the investors. This study uses two modes of accounting and reporting recognized by the international accounting and reporting body. The two methods used in this study are the Handelsgesetzbuch, HGB, which are the German commercial code and the US GAAP. The two multinational firms used in this study are from German and USA but operate in the global market. The German firm has its headquarters in Germany but operates in the international market while the USA firm also has it’s headquarter based in USA but operates in the global market. The study analyses the income statement of these firms using the stipulated forms of accounting and recording.
Introduction
Financial reporting is a technique that most companies use to communicate with the investors. It enables the various investors to determine where to invest their financial capital and security. Financial accounting and reporting are significant aspects in a company. This enables the company to determine the progress of the company. They help the company to determine whether it is registering profits or losses in its operations. Financial accounting in a company involves the use of income statements in the organization. Income statement of a company involves all the capital expenditures in the company (Barth, 2012). It shows the financial value of the company in terms of assets and cash in the business. Income statement is used by various companies to help value the company and to compare the operations of the company with other companies in the market. This also helps the government to rate the various companies and their operations. International business and companies use different methods of accounting and reporting in the organizations. The most commonly used methods of accounting and reporting in the companies are Germany counting and reporting method and the USA GAAP accounting and reporting technique. These two are used by different companies to calculate and record the income statements in the companies (Christensen, 2013).
This study primarily aims to determine and compare the income statements two different multinational companies. The two companies are multinational companies based in Germany and operating globally but with the headquarters in Germany and the other one is a multinational company operating globally and with headquarters in USA. The Study takes into account the income statement of Deutsche Post multinational company in Germany and the Nestle group multinational company in US for the year ended December 2005.
HGB is the German marketable code. It considers the commercial law of the German firms, annual accounts and consolidated accounts. The financial reporting criteria used in HGB by the German firms are affected significantly by the rulings made by the federal court of justice in Germany. HGB has, therefore, allowed the different multinational German firms to construct their financial reporting that is in accordance with the international accounting and reporting standards.
Literature Review
This study conducts an in-depth analysis of the income statement of the two multinational companies. The study ensures an intensive analysis of the various articles and work conducted by different other companies and researches on income statements. This enables the study to ensure the income statement of the two companies inclusive of all the required aspects of income statement reporting. This enables the study to ensure the income statement of the two multinational companies follow the international standards for income statement recording. The international accounting and reporting body has a significant method for the formulation of the income statement. The review of literature in this study, therefore, ensures the income statements of the two multinational companies follow the recommended methods and includes all the required aspects of the capital in the company (Adibah, 2013). German accounting and reporting method and the USA GAAP accounting and reporting methods are examples of the recommended and accepted modes of calculating and reporting income statements by the international accounting and reporting body.
General Analysis
The study, therefore, analyses the income statements formulated by other different companies and bodies using these two modes of income statement formulation. This has enabled the two companies to register a more advanced income statement.
The income statement below is for the German multinational company Deutsche post prepared by the German accounting and reporting method.
Income statement by German Accounting and reporting method
1 January to 31 December 2015
€ m Notes 2012 2013
Revenue 34 12,608 13,006
Other capitalized services 35 26 36
Other operating income 36 1,343 1,372
13,977 14,414
Materials expense 37
Cost of consumables and supplies and of goods purchased and held for resale
291 285
Cost of purchased services 3,877 4,168 4,010 4,295
Staff costs 38
Wages, salaries and emoluments 5,590 5,683
Social security contributions, retirement benefit expenses and assistance benefits
1,562 7,152 1,499 7,182
Amortization of intangible assets and depreciation of property, plant and equipment
39 240 267
Other operating expenses 40 1,977 1,685
13,537 13,429
Financial result 41 284 220
Result from ordinary activities 724 1,205
Extraordinary result 42 -34 -34
Income tax expense 43 -50 87
Net profit for the period 640 1,258
Retained profits for the previous financial year 44 674 468
Net retained profit 27 1,314 1,726
Income statement of the USA multinational Company
Turnover 109646517.85
Other operating income 226063.61
Material and services
External services 10146050.34
Personal expenses
Sales and remunerations 59549641.62
Other personal expenses 14197318.77
73746960.39
Depreciation and amortization 1688503.92
Other operating expenses 2058
2193.51
Operating profit 3708873.30
Differences of German Accounting and US Accounting and Reporting system
The German accounting and reports system is captured to employ more emphasis on the management accounting. The US accounting and reporting technique employ more weight on financial reporting. This has affected the operations of the businesses differently both in USA and Germany. The investment norms, values and policies in the two countries greatly differ as a result of this. This has enabled the investors to realize that in US investing heavy resources requires more than just costing practices. Organizations in Germany are depicted to be having stronger information system than the US counterparts. This has resulted to the difference in the income statements of the firms in the United States and those in Germany.
Conclusion
Financial reporting is very important for the investment activities in a country. Income statements play a major role in the investment decisions made by the various investors. Miscalculations and wrong methods of accounting misleads on the current financial position of the company. Multinational companies in both Germany and USA report their financial status by the use of income statements. The international accounting and reporting body has a recommended format for the formulation of the income statement. The two companies use the German accounting and reporting method and the US GAAP method of accounting. These two methods are recognized worldwide by the international body. This has ensured the two companies attract both local and foreign investors and maximize profits in the market.
References
Adibah Wan Ismail, W., Anuar Kamarudin, K., Van Zijl, T., & Dunstan, K. (2013). Earnings quality and the adoption of IFRS-based accounting standards: Evidence from an emerging market. Asian review of accounting,21(1), 53-73.
Barth, M. E., Landsman, W. R., Lang, M., & Williams, C. (2012). Are IFRS-based and US GAAP-based accounting amounts comparable?. Journal of Accounting and Economics, 54(1), 68-93.
Christensen, H. B., & Nikolaev, V. V. (2013). Does fair value accounting for non-financial assets pass the market test?. Review of Accounting Studies,18(3), 734-775.
