Consolidation of Multinational Company Financial Statements

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Financial Operations within Multinational Companies in the XXI Century

With the introduction of globalization principles into the present-day business environment and the creation of the global market, several operations within a typical company have changed, the financial ones being the first to undergo a series of alterations (Das, 2010). Defining the key specifics of financial transactions in the new environment will help outline the key obstacles that most modern SMEs face in the process and, thus, provide viable solutions (Zulkifli-Muhammad, 2009).

Foreign Currency Transaction and the Consolidated Financial Statements of a Multinational Company

As a rule, foreign currency transactions affect the exchange rate greatly (Wittington & Delaney, 2011). As a result, a company may incur several losses unless the alterations in the exchange rate can be predicted and, thus, the proper precaution measures are undertaken by the company in question (Bondar, n. d.). Allowing for reporting on the financial condition of the company, a consolidated financial statement of a multinational company helps the leader coordinate the monetary transactions carried out within different departments and, more importantly, different affiliates of a large enterprise (Sivakumar, n. d.).

Eliminating and Consolidating Intercompany Transactions: Methods and Strategies

The very procedure of transactions consolidation already presupposes that the latter is going to be eliminated eventually (Report on support to SMEs in developing countries through financial intermediaries, 2011). According to the existing research, the equity method is used most often for the given purpose (AIN-APB 18: The equity method of accounting for investments in common stock: Accounting interpretations of APB Opinion No. 18, n. d.).

Non-Conditional Investments Use in the Course of the Financial Statement Process

It should be noted that a non-conditional investment pledge is, as a rule, not quite welcome among the possible partner companies. Therefore, it is crucial to make efficient use of the ones that a company already has in its possession. Seeing how the non-conditional sector does not need formalities (Foreign agricultural investment country profile, 2012), it is reasonable to use it to carry out the transactions that are essential for the company’s success and that must be completed urgently (Saudagaran, 2009).

When dealing with a financial statement, it is crucial to abstain from using non-conditional investments as the location of unceasing resources for the company’s strengths replenishment (Appraisal and issuance of investment certificate for projects subject to non-conditional investment sectors and with a capital of at least VND 300 billion, 2014). Instead, non-conditional investments must be used as the company’s final resort; more to the point, a company must make sure that non-conditional investments result in an impressive return (Boza, 2012).

Conclusion: What Needs to Be Revisited and Improved: Suggestions and Recommendations

The changes within a company’s financial transactions, even those that happen on a global scale, are not supposed to depend on the currency rate (Intercompany transactions, n. d.), and neither should they affect the currency rate in a negative manner (Murphy, 2010). While the exchange rate is shaped by companies’ performance to an impressive extent, the negative changes occurring to the company are also to be taken into account, which means that the fluctuations in the currency exchange are to be observed by any SME (Banham, 2010), with a detailed analysis of the paradigm of its alterations and the attempts at coming up with a viable prognosis (AICPA, n. d.).

Reference List

AICPA (n. d.). IFRS for SMEs — U.S. GAAP comparison wiki. Web.

AIN-APB 18: The equity method of accounting for investments in common stock: Accounting interpretations of APB Opinion No. 18 (n. d.). Web.

Appraisal and issuance of investment certificate for projects subject to non-conditional investment sectors and with capital of at least VND 300 billion (2014). Web.

Banham, H. C. (2010). External environmental analysis for small and medium enterprises (SMEs). Journal of Business & Economics Research, 8(10), 19–26.

Bondar, G. (n. d.). Techniques for managing exchange rate exposure. Web.

Boza, A. (2012). Strategy diversity stabilizes mutualism through investment cycles, phase polymorphism, and spatial bubbles. Computational Biology, 8(11), 1–14.

Das, D. K. (2010). Contours of deepening financial globalization in the emerging market economies. Global Journal of Emerging Market Economies, 2(1), 45–67.

Foreign agricultural investment country profile (2012). Web.

Intercompany transactions (n. d.). Web.

Murphy, E. A. (2010). Teaching consolidations accounting: An approach to easing the challenge. American Journal of Business Education, 3(11), 101–110.

Report on support to SMEs in developing countries through financial intermediaries. (2011). Web.

Saudagaran, S. M. (2009). International accounting: A user perspective. New York, NY: CCH.

Sivakumar, A. (n. d.). Corporate hedging for foreign exchange risk in India. Web.

Wittington, O. R. & Delaney, P. R. (2011). Wiley CPA exam review 2012, financial accounting and reporting. New York, NY: Wiley & Sons.

Zulkifli-Muhammad, M. (2009). Small and Medium Enterprises (SMEs) Competing in the global business environment: A case of Malaysia. International Business Research, 3(1), 66–75.

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