This is my first professional writing and my first published writing as well, appeared in The Bangladesh Accountant (ICAB) January - March,2015. Here I reproduce the same for your valuable evaluation. It was on Financial Accounting.

1. Abstract
Globalization is definitely one of the most
uttered words today. In most aspects of
our life, the implication of globalization is
very clear. For example, we can talk about
the high popularity of dish TV channels,
the surprising improvement of technology,
the incremental knowledge and
information sharing, the growing rate of
immigration and emigration, the
emergence of transnational cultures and
so on. The impact of globalization on
business is also very particular: before
doing any business, we have to consider
facts from global viewpoint instead of
confining in any particular geographical
boundary. Import, export, production
technology, manpower sourcing,
marketing and promotion, competition –
hardly there is any facet of modern
business which is not influenced by
globalization. As an important part of
business, financial reporting is not an
exception to this. In order to enhance
comparability and consistency, the
accounting profession has developed IAS,
IFRS and likewise regulations to be
observed by businesses in the preparation
of general purpose financial statements.
These are named standards, as they are
equally applicable to all businesses
around the world. Surely the launching of
these standards has added to the quality of
Some Adaptations to Financial Reporting
in Response to Globalization
Thauhidul Alam
financial reporting. But it is also
recognized that there remains huge room
for perfection. Circumstance is continually
changing, and businesses are exposed to
new issues. Hence continuous
modification of FR standards is essential in
the interest of proper application.
Here I have pointed out some of the areas
in which the FR standards should be
upgraded, along with pertinent
suggestions. The discussion is given under
appropriate section headings.
Ratio Analysis to Address Increased
Global Pressure for Quality
It is beyond saying that globalization asks
each and every business, irrespective of its
geographical coverage, to continually
improve its product or service quality.
Nowadays no business is truly domestic.
Just two decades back, most of the
businesses faced competition from only
their domestic counterparts. The scenario
has changed quite dramatically. Trade and
commerce has been cross border and
foreign enterprises are expanding in
gradually larger scale over your physical
place of business. By dint of improved
means of information technology and
aggressive advertising campaigns by
foreign enterprises, consumers are now
pretty conscious about the real price and
 

2. 
utility of a product. Foreign
companies are commonly found
offering better quality and features
within the same price range. So the
competition is extremer now than
in ever ago and you must work
with the quality of your offerings in
order to survive and thrive. The
day of washing a new customer’s
eye and making one-shot profit has
passed away.
The fundamental of financial
analysis is ratio analysis. Various
categories of ratios are common to
demonstrate in notes to the
financial statements, or at least in
the annual reports. What to say is
that all of the ratios focus on
financial information, moving
around assets, liabilities, equity,
revenues, expenses and profits.
Therefore, better the name is called
“Financial ratio analysis” instead of
merely “Ratio analysis”. As clear
from the above discussion, many
of the stakeholders (including
customers, investors and owners)
are by and large more interested in
non-financial (i.e. operational)
information, particularly quality. So
it is high time financial figures
were combined with non-financial
ones to develop a new category of
ratios, for the purpose of showing
the impact of quality on the
bottom-line of the financial
statements and thereby augmenting
the usefulness of financial
statements to their users.
Quality improvement attempts
always sound to be expensive;
moreover, the benefits are visible
as well as valuable in the long run.
So it is quite rational that the
management hesitates about and
delays in investing in quality.
Provided this context, FR should
come ahead to prove that the
benefits of quality really worth the
investment. The abovementioned
ratios should be designed in a
manner to exhibit relationship
between quality, sales, costs,
defects and wastage. I suggest
some sample ratios below:
QUALITY
IMPROVEMENT
ATTEMPTS ALWAYS
SOUND TO BE
EXPENSIVE; MOREOVER,
THE BENEFITS ARE
VISIBLE AS WELL AS
VALUABLE IN THE LONG
RUN. SO IT IS QUITE
RATIONAL THAT THE
MANAGEMENT
HESITATES ABOUT AND
DELAYS IN INVESTING IN
QUALITY. PROVIDED THIS
CONTEXT, FR SHOULD
COME AHEAD TO PROVE
THAT THE BENEFITS OF
QUALITY REALLY WORTH
THE INVESTMENT.

3.  
much. One thing is clear that the
above inconsistency or
incomparability arises on account
of differing laws and tax rules. So
until and unless tax provisions of
every country meet on a single
point, the context of preparing
financial statements will not be
equivalent and the discrepancy can
no way be eliminated. Now, living
in this age of globalization, is it too
absurd to say that some parallel tax
laws to be developed among
countries?
Exchange Rate Fluctuation
Gain or Loss: How Much
Worth Accounting for?
As one of the most visible
consequences of globalization,
businesses nowadays are more or
less involved in foreign trade.
Accordingly modern businesses are
seriously exposed to the exchange
rate fluctuation. Proper accounting
treatments are directed in the FR
standards in this regard. But, can
there really be any fluctuation gain
or loss which needs recording?
Fluctuation gain or loss arises on
account of exchange rate up or
down between the transaction
date, reporting date and settlement
date. Of course future is uncertain
and we do not know for sure
whether exchange rate will go up
or down on the settlement date.
But we also know that there are
Such ratios must be made an
integral part of the notes to the
financial statements. This will
ensure that owners get to feel the
merits of quality improvement
attempts.
Comparability of Financials
in the Context of Differing
Legislations and Tax
Provisions
As mentioned earlier, on account
of globalization all businesses,
irrespective of their scale of
operation, are subject to
cross-border competition. One of
the major implications of this is
that comparability becomes a
major headache not only of the
users of financial information but
also of its preparers. In other
words, businesses intend to show
their operation same lucrative as
compared to that of their domestic
as well as foreign competitors.
Going to do this, preparers of
financial statements tend to
compromise with FR standards.
All businesses are operating within
the jurisdiction of some regional
laws and regulations. Moreover,
every government has in effect its
own tax rules and provisions.
Compliance with these local laws
and tax rules is more important for
businesses than with FR standards.
Every company intends to keep its
financial statement figures in a way
that its actual tax liabilities as well
as disclosed profit lie around its
planned figures. When you cannot
do this in compliance with FR
standards, you simply bypass them
and arrange the financials in your
own way.
But listed companies and MNCs
are bound to follow the FR
standards, since their financial
statements are subject to greater
public and legislative exposure
than that of a non-listed domestic
enterprise. Now when some
businesses are abiding by the FR
standards and others are not, how
effectual is the comparison of
inter-business financials?
The question is: why businesses
sidestep the FR standards. The
answer is twofold and very
straightforward:
- They are not facing any
punishment for contravening
the standards;
- They are not able to keep the
bottom-line figures as of their
expectation if they comply with
the standards.
As to the first point, punishments
are suggested in pen and paper,
just awaited for implementation. I
have nothing to say anew in this
respect.
What can FR do on the second
issue? Simple answer: nothing
Proposed name of the ratio How should be calculated Remarks
Marginal cost of quality
Monetary investment in
quality ÷ Production units
The lower, the better
Marginal sales from quality
Sales ÷ Monetary
investment in quality
The higher, the better
Defection sales
Sales price of scrapped units
÷ Sales price of good units
This ratio will definitely stay
below 1; yet the higher, the
better.

4. 
The Author is an Asst. Manager -
Internal Audit, Valiant
(Apparel Division of Habib Group)
option contracts, forward contracts,
future contracts and various other
derivatives in order to hedge
against this movement. Those are
advance concepts of Financial
Management; we just take the
basics: you may fix up the
exchange rate on a future date in
order to prevent the downside risk
of exchange rate fluctuation. If you
can do that, you now surely know
how much you have to pay to the
foreign suppliers and how much
you are going to receive from
foreign buyers, in terms of your
functional currency (often is the
domestic currency). At the
reporting date you will record
receivables and payables in the
fixed amount. Of course exchange
rate on the settlement date may be
higher or lower than the rate fixed
by you, but it does not affect you
any more since the contract is
binding on you. In that case, what
is the ground for showing
fluctuation gain or loss in the
accounts?
ForEx contracts are not trendy in
Bangladesh. But there is nothing
too formal as to doing above.
Simply you have to fix the
exchange rate with your bank. First
you must guess about the
exchange rate on the settlement
date. There are a number of futures
exchanges around the world; such
as: Chicago Mercantile Exchange,
ICE, Eurex, CBOE and LIFFE. You
can learn what the exchange rate is
going to be on a future date from
these sources. If you think
appropriate, you can add your own
assessments thereof. The bank you
are dealing with also suggests you
a particular exchange rate based
on its assessment. Now, finally
upon a successful negotiation, you
mutually fix the exchange rate for
your future ForEx agreements and
shield yourself against the adverse
fluctuation in exchange rate. If you
compare with the spot rate on the
settlement date, sometimes you
will be gainer and sometimes be
loser: but at the yearend you are
likely to be balanced off. So you
actually need not worry about it.
This technique can be used equally
for both transaction and translation
exposures. This is not too
sophisticated to use. The upside is
that by using this simple technique
you can:
- definitely know the amount of
cash inflow or outflow to
incorporate in your budgeting;
- eliminate the unnecessary gain
or loss which may manipulate your
profit figures;
- make your reporting more
understandable to people from
non-accounting background.
Concluding Remarks
The lesson of globalization refers
to the old maxim: “Survival of the
fittest”. Rivalry has been intensified
in every respect; so you must more
and more excel in your operation
for paving the way to growth.
Since financial reporting is the
major tool for representing the
health of your business in front of
others, it also requires to be
reviewed continuously for the sake
of enhancing its understandability,
reliability and comparability to
general people. “Accounting is the
language of business, so people
not having the basics should not
understand it.” – such traditional
rough and tough notions are
definitely outdated in this dynamic
era. Now is the time for practicing
a rational accounting, which
non-accounting people would feel
easier to get with.