Finance

Activity-based costing system is “a technique of cost attribution to cost units on the basis of benefits received from indirect activities e.g. ordering, setting up, assuring quality” (CIMA, in Rajasekaran and Lalitha, 2011, p.272). In simple terms, in activity-based costing system overheads are assigned to specific activities with individual cost centres and cost activities clearly identified. The current costing system of Manac plc, absorption costing system can be explained as “a costing system wherein fixed manufacturing overhead is allocated to (or absorbed by) products being manufactured” (Accounting Coach, 2013, online). The main differences between the two costing systems relate to the role of overheads in accounting system, the types of cost drivers, and the allocations of costs. Advantages of Activity-Based Costing System for Manac plc There is a set of advantages to be obtained by Manac plc from replacing its current absorption costing system with activity-based costing system. First of all, by introducing activity-based costing system Manac plc management would be able to eliminate a range of activities that do not add value, consequently reducing the cost of product. Introduction of activity-based costing also provides Manac plc financial management the possibility of tracing the costs overheads with an increased level of accuracy and reliability. The value of this advantage can be explained in a way that the management would be able to explore the possibilities of reducing overhead costs to increase the levels of profit margins. Furthermore, by adopting activity-based costing system Manac plc financial management would be able to monitor the total life-cycles of all costs and identify and utilise the possibilities of their reduction. Activity-based costing system can also provide an effective linkage between Manac plc corporate strategy and decision making at an operational level. In other words, Manac plc managers would be able to analyse cost-life cycle…

Harmonization is aimed at reducing differences in financial reporting processes around the world.  The goal is to achieve some level of comparability in the way financial statements are prepared and presented. When international harmonization occurs, the difficulties for companies and individuals considerably decrease in presenting the financial statements and their interpretations. There are several organizations that have been trying to eliminate the differences between financial reporting standards and achieve international harmonization. If international harmonization is achieved, many countries would benefit from it as it would improve the access to the international financial markets and improve the confidence and knowledge of investors which may even trigger an increase in future investments. As mentioned by Wiley (2000) even if the harmonization is achieved, this will not be fully as there still will be differences in preparation and presentation of financial statements due to reasons such as taxation, culture and the political factors that shape up the accounting standards in any country. Harmonization, as being different from standardization, is the process of creating a similar set of procedures by establishing boundaries as to how much they can differ globally. However, standardization is the process of unifying the reporting standards to make them the same. However, this is almost impossible to achieve. Therefore, harmonization has been implemented considering the facts that even the harmonization can not eliminate the international differences in reporting standards. Garrido, León, and Zorio, 2002 stated that the globalisation has been one of the main drivers of moving towards harmonization by eliminating differences. This has been increasingly important in the case of multinational companies when operating internationally and using different sets of reporting standards which made it less efficient to compare the financial statements. Another importance for harmonization has been an increasing focus on investors as they benefit from new IFRS due…

Probably there are no any other factor that causes more diversity in accounting than the legal system  a country has, as it does not only shape the behaviour of its citizens, but it also prescribes accounting rules and regulates accounting and financial reporting. The degree to which government is involved in standard-setting varies from country to country. Countries that practice common law,such as UK and US have their accounting regulation in the hands of professional organisations with fewer regulations while on the other hand, countries that practice Roman or code law e.g. France and Germany rely on detailed rules that are often included in their company legislation. (Table given below illustrates in which some developed countries’ legal systems fall into this two category.) This leads to less flexibility in the preparation of financial reports and are less likely to justify the accounting treatments as used in common law .   Common Law Codified Roman Law England and Wales France Ireland Italy United States Germany Canada Spain Australia Netherlands New Zealand Portugal   Japan (commercial) Source:  Nobes and Parker (2008) Many studies have showed that “common law” countries tend to be innovative and open to new business ideas, whereas “code law” countries are more likely to follow the formal, written rules and procedures. Further, there seems to be some association of common law countries with particular types of accounting practices. For example, companies operating in common law countries have higher levels of disclosures and tend to report losses quickly (Nobes Parker, 2008). Doupnik and Salter (1995) state that the type of legal system (i.e. code law versus common law) was the main explanation and the basic starting point lied in classifying  accounting practices and financial reporting internationally. Another issue that closely related to a country’s legal system is judicial corruption. The…

There have been several researches into the adoption and harmonization of IFRS in EU countries due to the nature and importance of the topic. Street and Shaughnessy (1998) mentioned about several differences between the international reporting standards and reporting standards of major Anglo-American countries. The difference between harmonization and standardization has been analysed by McLeay, Neal and Tollington (1999) and they presented a method to measure harmonization that allows for choice between alternative accounting treatments. Further studies were carried out by Murphy (2000), Van der Tas, (1998) to identify the compliance with IFRS by selected companies by analysing the annual reports of companies from different countries. The early adopter, who adopted IFRS before 2005 optionally were evaluated by group of researchers (Street and Gray, 2001; Taylor and Jones, 1999) and they found out that different companies financial statements showed different levels of usefulness by applying IFRS. Street and Gray (2001) selected a sample of 279 firms that used IFRS in preparing their financial statements. And the research found out that in most cases, disclosed accounting policies were not consistent with IFRS. Another important finding by Schultz and Lopez (2001) suggest that uniform international accounting standards may not result in uniformity among countries especially when the standards allow for significant discretion. Jermakowicz and Tomaszewski (2006) carried out research into the quality of IFRS compared to GAAP and found out two reasons as why reporting under IFRS does not provide higher accounting quality. One of the reasons for their argument is because of domestic standards that limit managerial discretion relating to accounting alternatives. They argue that limiting managerial discretion relating to accounting could eliminate the firm’s ability to report accounting measurements that are more reflective of its economic position and performance. Another reason is the inherent flexibility in principles-based standards that could…

Financial Reporting is a way of presenting data about a company’s financial position, the company’s operating performance, and the flow of funds over an accounting period. According to ACCA, the objectives of financial reporting standards are defined as follows” The overall objective of the FRS is to require all entities falling within its scope to highlight a range of important components of financial performance to aid users in understanding the performance achieved by an entity in a period and to assist them in forming a basis for their assessment of future results and cash flows.” And moreover, the American Financial Accounting Standards Board defines Financial Reporting as follows” activities which are intended to serve the informational needs of external users who lack the authority to prescribe the financial information they want from an enterprise and therefore must use the information that management communicates to them”. Based on above mentioned definitions, it is understood that a company’s financial information should be communicated to its relevant stakeholders such as shareholders, investors, government, lenders and others who are making business, financial and credit decisions. However, as globalisation is intensifying and creating multinational companies and organizations, accounting practices and regulations became different across different countries and the consistency became a very important and critical issue.  It became difficult to measure income and expenditure in the income statement, as well as measuring and recognising assets and liabilities in the balance sheet. Therefore, it is often really hard for anyone making business and financial decisions, to decide when comparing two companies’ financial statements especially if they are located in two different locations. Nobes and Parker (2008) also state that if a number of accountants from different countries, or even one country, are given a set of transactions from which to prepare financial statements, they will not…

As part of the economical reforms that began in 1978, the Chinese authorities shaped preferential policies to attract foreign investments. As a result, China received a hundreds of billions of dollar in FDI, making it largest developing country to host FDI as recent inflows account for nearly 40 percent of combined flows of FDI to all developing countries (IMF 2000). Though these figures very impressive, however, there are certain problems that Chinese government has to overcome if FDI is needed to sustain country’s  continuing record growth rate  and further its economic development. The figures published by OECD (2000) shows that distribution of FDI in Chine has been very disproportionate among regions. Between period of 1983 and 1998, eastern region attracted 87.8 percent of FDI whereas the central region took 8.9 percent and western region grabbed only 3.3 percent. The report states that main reason behind this inequality is inappropriate FDI policies taken by the Chinese authority. Creation of special economic zones (SEZs) and preferential regimes for 14 coastal cities resulted in geographically an overwhelming concentration of FDI in the east region. Only after adoption of more broad-based economic reforms and open door policies for FDI in the late 1990s, spreading of FDI inflows into other provinces accelerated. However, Broadman and Sun (1997) argue that FDI’s geographically distribution in China is influenced by many different factors rather than solely government policies. They empirically analysed the geographic determinants of FDI in China and concluded that to a large extent the destination of FDI within China is determined by market size, the extent of infrastructure development, the basic education level among adults, vicinity to import and export markets as well as capital sources and special investment policies. The sectoral of FDI varies from country to country and from year to year. As for…