Category: Business

Accounting and multinational corporations

Accounting and multinational corporations

Multinational corporations are dedicated to the development of one or more activities in several countries, where they’ll seek to grow their operations, and further expansion of their activities, resulting in an economic growth, given the low costs that allow low prices and an expansion of their market.

Regarding the precise definitions of a multinational, there has been a certain amount of controversy over the different ones that exist. Some define it as any company that maintains economic operations in more than one country, while others argue that this should not be limited to possessing operations outside the borders, but they must also have capital and staff from different countries as well.

Several different types of corporations can be identified. An ethnocentric company is oriented to their nation and its subsidiaries are controlled by the parent company, the accounting system is based upon the practices used in the country of origin, and there is a permanent domain of the head office. A polycentric company implies a decentralization in which the development of the accounting practices of each of its subsidiaries is allowed, and the economic returns are expected by the parent company. In the case of a geocentric company, accounting information systems are accessible to the systems of all countries involved in it. Its design is created based upon the systems of the most developed countries and international standards.

Needs and financing

What needs do these multinational corporations develop and how can they be financed?

Among the needs we can find a quest for homogenization on how to use the resources, personnel and financial information, and, overall, the control of its subsidiaries, creating an organizational environment with efficacy. Another need is to create good relations with the governments of countries in which the subsidiaries of the multinational firm are located, demonstrating the benefits it generates, thus allowing an atmosphere of trust that will facilitate an easy access and distribution of their products.

A multinational firm must comply with various legal areas allowing the development of its activities and creating a degree of confidence in their products and the financial information presented to users, which should be easy to understand since it should be developed based on the normative aspects of their country.

In order to work on these needs, multinationals must have a source of funding that can be a north american source for obtaining funds, an international source of funds, local sources of funds abroad, or other foreign sources of funds.

Accounting development of multinationals and its issues

While the basic techniques of accounting for business transactions are the same regardless of the country in which the business is conducted, problems arise when applying these techniques to foreign operations, which do not exist in domestic operations.

These problems grow out of conditions such as the distance from the parent company, different languages and the resulting barriers to facilitate communications, different laws and legal systems, different stages of progress in the art of applying accounting, different accounting practices, and different types of currency. Let’s take a closer look at each one of these.

  1. Distance from the parent company: this difficulty is presented by the distance between the parent company and its subsidiaries at the time of collection of the information related to the different movements and transactions that will be necessary to prepare financial statements.

In many cases the parent companies attribute the delay in getting the financial statements of foreign subsidiaries to the fact that accountants in some countries do not put much emphasis on periodic reports, as do the accountants in developed countries.

  1. Different languages: local laws and employment of local staff make it necessary to keep accounting records in the national language and the national currency in most countries, without the need to store this information in a different language (the parent or subsidiary’s language), causing problems when it comes to analyzing and interpreting the information presented by different companies.
  1. Foreign laws: Each country has its own laws and administrative agencies that regulate accounting in that country. Due to the approach given to every law in their country of origin, this leads accountants to give a different management to their profession, be it thinking about the welfare of the company, state or partners.
  1. Differences in accepted accounting practices: when a subsidiary conducts its financial statements, these are made according to the laws of each country. When consolidating the information, certain difficulties may arise. When differences are material, subsidiaries adjust their statements to the accepted practices that the parent company follows.
dollars no cents_multinational corporations_shahram shirkhani
Image courtesy of Monica PC at Flickr.com

Some companies require that all of their subsidiaries follow the same methods of accounting, which is why multinational companies have an accounting manual that provides a set of accounts, standard depreciation rates and a number of reporting forms. All of this makes it possible to compare accounting and costs between countries.

  1. How to ensure a competent accounting staff abroad: what is believed to be the most appropriate is to have a responsible accountant in the same country as the subsidiary, but many multinational companies do not agree, and have sent local staff from the parent office to perform these duties in the various subsidiaries they own.

In search of a greater degree of trust and credibility of transactions and movements made by each subsidiary, the parent chooses to apply some of their practices in other countries, sometimes without being aware that this can bring administrative and legal consequences to its subsidiaries. This is why it is best to train foreign personnel to perform their duties according to what the headquarters want, but proportionately to the development of said countries.

  1. Accounting issues due to differences in currency: due to devaluation, in some cases, when the foreign currency is converted to the local one, a company can go from profiting to losing.

What many multinationals sometimes don’t understand is that the profit margins that are satisfactory when measured in local currency, may not be the most appropriate to compensate for the devaluation and thereby maintain working capital and productive capacity.

What it’s like to work for the best multinational companies

What it’s like to work for the best multinational companies

A Great Place to Work for over 25 years has studied and pinpointed the best workplaces from all over the world. They say that any company can do it, all they need is to invest in building a trusting relationship with all of the organization, where they can see benefits of interested, engages and vibrant employees. At the end of the day the most benefitted will be the organization with more innovative products and satisfying relationships, that will be seen in profits. Trust is the foundation, they say. Trust among co-workers turns into camaraderie and trust from managers will also have benefits with creating safe environments for employees to innovate freely. Through their work they research and survey employees from all over the world, information with which they created a model that could be used in any company that builds upon trust to increase performance. In 2016 after analyzing the top multinational companies, these were the ones that came in on top for employees when surveyed.

No. 5: Quicken Loans

Quicken Loans is America’s second largest mortgage lender, closing businesses across the 50 states in 30 days or less. The employee ratings were 96% when asked if their workplace was a great place to work. They were asked how they felt about their company from a variety of different perspectives, but the ones that were higher than the rest, only by a few percentage points, were a great atmosphere and and great pride. Most employees stated during their interviews that they felt good about how they contributed to the community and how their facilities contributed to a good working environment. The employees at the company also have available to them many different perks and advantages to working there like the “Live Downtown Program” which offer significant housing incentives to live in downtown Detroit like stipend for first time renters or loans for purchasing a new home or home improvements.

No. 4: Wegmans Food Markets, Inc.

Being a family-owned, employee-first, food company, it is known for a fun, family environment where you’ll find caring relationships with co-workers and customers. You’ll feel right at home when you visit them. Their employees feel the same, especially since they feel the company has empowered them and invested in their development. Their sense of pride was what was qualified the highest among their employees. They have perks for employees as well like a Wellness where they have programs which include free blood pressure and health screenings, tobacco cessation, subsidized Weight Watchers, EAP and yoga. Besides this they have scholarship programs, talent pipelines and development programs that offer training and development resources in-house.

Wegmans_shahram shirkhani_multinational companies_
Image courtesy of luluinnyc | Amy Dreher at Flickr.com

No. 3: The Boston Consulting Group, Inc.

The great atmosphere is what employees rate the highest at The Boston Consulting Group, Inc., a management consulting firm which specialize in business strategy and general management. They have at least two-thirds of their clients on the Fortune 500 list, as well as mid-sized companies, non-profit organizations and government agencies. 98% of employees feel they have special and unique benefits at The Boston Consulting Group and their proud to tell everyone they work there. Their perks of having an individualized career and professional development program include extensive training, mentorship, coaching and feedback-based development infrastructure. They also offer On-Demand Virtual Learning and industry-leading benefits package.

No. 2: ACUITY Insurance

96% of employees say that this is a great place to work. Their great atmosphere, rewards and sense of pride are the top qualities that their employees value. ACUITY Insurance is headquartered in Wisconsin and specialized in regional property and casualty insurer. In the last 15 years they have been part of Ward’s 50 Best-Run Companies. They generate $1 billion annual revenue from over 1,000 independent insurance agencies in 24 states. The company has a great work environment where employees feel that they celebrate special events and they feel good about how they contribute to their community. Magic Happens Gossip Line is when feedback is given on a global scale via a massive voicemail message and the employee is given a $100 gift card. They also have the five-year club, some wellness initiatives and generous benefits.

No. 1: Google Inc.

Google employees agree that they feel great pride saying they work there, and love the challenges, atmosphere and rewards they offer. This technology company is making information more and more accessible and specialize in internet-related services and products. The employees say that special and unique benefits at Google are amazing, as well as how employees in general are willing to go the extra mile to get things done. Their Google Reach Volunteer Trips is one of their philanthropic efforts that help communities’ small businesses face development challenges. Talks at Google is a great perk that brings artists, authors, politicians, celebrities and performers all through the year to speak at the Google offices. The goal of these talks is to connect Googlers to the content creators and experts in the different fields. They also made an important move in parental leave when they decided to give primary caregivers up to 12 weeks of fully paid baby bonding time, as well as up to 20 weeks to birth moms. Not to mention, their Dogfooding program where employees can test drive new apps, programs or software and give feedback to the team developers.

3 Nations with a Head Start on Drone Legislation

3 Nations with a Head Start on Drone Legislation

Previously only used in military operations, drones are now available to everyday citizens for recreational purposes. Multiple industries, from agriculture to emergency services, are also exploring ways to harness the new technology. As a result of the increasing popularity of drones, the following countries are creating new aviation laws to regulate consumer and commercial drones:

France

France has a history of being at the forefront of legislation regarding aerial vehicles. When the Montgolfier Brothers launched their first hot-air balloon flight in 1784, their country quickly banned all unauthorized flights over Paris. Although the growth of the drone industry has outpaced that of relevant regulatory development in many cases, France was one of the first nations to draft comprehensive drone legislation covering both civilian and commercial use. The nation also provides one of the most welcoming environments for commercial drone use, with more than 1,250 registered commercial drone companies—more than any other country. Still, unlawful drone use in France can result in fines of up to 75,000 EUR, and up to five years in prison.

France officially added unmanned aerial vehicle (UAV) governance to its civil aviation regulations in 2012. The laws allow for drone flights between altitudes of 50 and 150 meters. They also categorize drones into seven groups based on weight, beginning at under 25 kilograms and ending with vehicles exceeding 150 kilograms. In addition to weight, some of the groups classify drones based on whether they are connected to a tether or flown unrestrained.

For each UAV category, French regulations stipulate specific safety requirements, including features to protect bystanders in the event of a crash or malfunction. Additionally, all drones must remain within the operator’s line of sight during flight.

The United States

Both recreational and commercial drones are rapidly gaining popularity in the US. In fact, the Consumer Electronics Association recently estimated that the US could see 1 million drone flights each day by the year 2035.

In 2012, Congress passed the FAA Modernization and Reform Act, which outlines plans to integrate civil drones into the national airspace by the end of September 2015. The FAA organizes individual drone flights—not the vehicles themselves—into the following three categories based on operator and purpose:

* Public Operations

Flights classified as Public Operations must be owned and piloted by a public agency or organization and conducted for government purposes. To carry out a Public Operations flight, agencies must receive FAA authorization for the aircraft type, location, and purpose. This license can allow legal drone flights for up to two years.

* Civil Operations

Drone activity by non-governmental organizations is classified as Civil Operations. To gain approval, these entities must petition the FAA to gain exemption from US laws requiring aircraft and pilot certifications. As of August 2015, the FAA had approved Civil Operations exemptions across 48 states and 20 industries, with most exemptions provided in the real estate, agriculture, and construction sectors.

* Model Aircraft Operations

pilot controlled quadcopter droneThe FAA created the Model Aircraft Operations category to regulate drone flights for recreational or hobby purposes. However, it is important to note that if a drone collects videos or images for anything other than personal use, such as for journalistic purposes, it must be authorized for Civil Operations.

In order to qualify for Model Aircraft Operations, a UAV must weigh 55 pounds or less. Recreational operators need to keep drones below 400 feet, clear of obstacles, and within their line of sight at all times. Additionally, Model Aircraft Operations must remain at least five miles away from all airports, and must avoid people and crowded areas like stadiums.

Because regulations on hobby drone use are fairly lax in the United States, many local jurisdictions have sought firmer legislation to govern drone flights. These efforts are fueled in part by growing public concern over privacy, as recreational drone operators appear to have rather broad privileges where aerial photography and videography are concerned.

In response to disruptive UAV flights in the Grand Canyon, Yellowstone, and Zion National Park, the US National Park Service has implemented a “no-drone” policy for the entire national park system. At present, the FAA is attempting to declare Washington, DC, a no-drone zone as well.

The United Kingdom

The United Kingdom’s Civil Aviation Authority (CAA) first addressed recreational drone use in the Air Navigation Order of 2009 and bolstered its regulations with the 2015 publication, “Unmanned Aircraft System Operations in UK Airspace – Guidance.” This legislation requires flights for aerial work to obtain authorization from the CAA, while units less than 20 kilograms require only a basic flying permit for non-commercial use. Drone hobbyists must follow certain altitude and location restrictions, with more stringent regulations applying to urban areas. They must adhere to basic safety guidelines, such as maintaining “direct, unaided visual contact” with their drones and remaining below 120 meters in altitude.

Operators of drones over 20 kilograms that wish to fly in populated areas must first obtain a Permit to Carry out Aerial Work from the CAA, which requires operator training and approval of the specific aircraft design. Additionally, commercial operators, including surveillance drones, must keep 150 meters away from congested areas or organized open-air assemblies comprising more than 1,000 people. They must also stay 50 meters away from any “vessel, vehicle, or structure.”

3 Tips for Understanding Foreign Ownership Structures

As an investor, are you looking to take on a new venture across seas? Tehran-based international legal consultant Shahram Shirkhami knows a few important aspects to consider when undertaking a new foreign investment. His work with many international companies and investors culminates in extensive knowledge of infrastructural investments, primarily in the Middle East region. Here, he shares his insights in making the most of foreign investments.

  1. Know Country-Specific Rules

When undertaking a major infrastructure project, it is crucial to understand the ownership structures of the individual country in question. “Certain Middle Eastern countries, such as Bahrain and the United Arab Emirates, do not place any tax burden on foreign-based investors,” says Shahram Shirkhami. This means that overseas incorporation can be quite the ideal strategy! Just make sure you do your research to understand the tax structure of the country where you’re looking to invest.

  1. Understand the Risks

While some countries offer tax-free investing opportunities, not all Middle Eastern countries operate this way. Some countries, such as Oman, require that foreign ownership be transitioned to a domestic ownership base at some point within the project life cycle. At this point, the shares are offered to the general public and reincorporation takes place. “In this case, the tax benefits of incorporating overseas must be carefully weighed against the hurdles and expenses associated with reincorporation,” says Shahram Shirkhami. In other words, investors should be certain that the long-term benefits can hold up to the risks related to this potential roadblock.

3. International Tax Treaties

When engaging in long-term operational planning, consider the international tax treaty of the country in question. Tax treaties might allow for reduced rates, or even tax exemption, on certain items of received income. Tax treaties can make investing in partner countries much more lucrative.

In summary, it can be truly profitable to invest in foreign ventures, primarily in the Middle East. Certain countries harbor tax laws and treaties than can benefit international investors. However, one must be aware of the risks involved when dealing with countries that require foreign ownership to be reincorporated to the domestic. Even in these situations, the threats might be overshadowed by tax benefits.

Commercial Arbitration Trends in the United Arab Emirates

In recent years, arbitration has become an increasingly popular method of commercial dispute resolution in the United Arab Emirates (UAE). While disputing parties have often preferred litigation in the past, the establishment of several arbitration institutions, as well as developments in UAE arbitration procedures and enforcement, have made arbitration a more common choice.

Since 2008, the majority of commercial arbitration cases have stemmed from the UAE’s bourgeoning construction and real estate sectors, but the region’s arbitrators have recently dealt with a broader range of commercial matters from a global client base. This is due in part to the continued growth of organizations such as the Dubai International Arbitration Centre (DIAC) and the Dubai International Financial Centre-London Court of International Arbitration (DIFC-LCIA). Located within the Dubai Chamber of Commerce & Industry, the DIAC provides a full range of arbitration services to the international business community, while the DIFC-LCIA represents a partnership between the world’s fastest growing financial center and its longest standing international commercial dispute resolution institution.

In 2006, the UAE joined the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, establishing its commitment to support global arbitration practices and their outcomes. While the country’s arbitration laws currently reside within its Civil Procedure Code, the UAE is working to draft an official commercial arbitration law.