With the growing internationalization of economic trade and the globalization of businesses and financial markets, financial information prepared according to a national accounting system may no longer satisfy the needs of users whose decisions are more and more international in scope. Multinational companies who were the most affected have been in the forefront in pressuring the International Accounting Standards Board (IASB) as well as the national standard setter to produce a core set of international accounting standards. In this presentation slide, we would like to discuss: (a) Define the Multinational Company. (b) What are the advantages and disadvantages of multinational companies? (c) Explain how multinational companies benefits from the convergence/ harmonization of accounting standards. (d) Explain any 5 efforts taken by the Malaysian Accounting Standards Board (MASB) to align the two sets of standards. (e) Discuss the impacts that occur on the financial reporting of companies in Malaysia arising from the new Financial Reporting Standard.

1. What is …
Multinational
Company?

2. Multinational Company
(MNC)
At least 2
controls countries
production
delivers
services
facilities
*Originated in 20th century and expanded after World

3. Also can be named as…
 Multinational enterprise (MNE),
 Transnational corporation (TNC),
 Multinational organization (MNO) ,
 Super National Enterprises,
 Global companies,
 Cosmocorps,
 International corporation.

4. Examples…..

5. Characteristics:

6. Advantages &
Disadvantages
of Multinational
Companies (MNC)

7. Advantages
 Acquire larger pool of customer
 Borderless World- do global, get
more customers
 96% Consumers/ 67% World
Purchasing Power=> Outside U.S.A.

8. Advantages
 Create rivalry and increase competitiveness
Source :
http://www.goldensegroupinc.com/mosongo/0906CW-IndiancompaniesvsMNCsTheRac

9. Advantages
 Gain cost advantage
 Increase efficiency, cut costs
 India receives most of all offshore revenue
 Companies from U.S. and Western Europe
have hired 170,000 Indians

10. Advantages
 Avoid trade barriers
 Inward investment- build own facilities
 Japanese car manufacturers invest into UK
-avoid EU Common External Tariff- UK
can access to high-quality cars at lower
prices.

11. Disadvantages
 Exploitation on natural resources
by MNCs
 Japanese MNCs - obtain raw materials
or lower-cost components to the
international markets (Ozoigbo &
Chukuezi, 2011)

12. Disadvantages
 A threat to economic and political
sovereignty of host countries, perhaps
 Protectionism
 Keep new entrants away from market- reap
profits

13. Disadvantages
 Destroy local companies
 Destroy competition in local market
 Acquire monopoly through acquisition
of domestic firms

14. Disadvantages
 MNCs may ignore home countries’
industrial and economic development
 More investments to foreign countries
 Less availability of domestic capital

15. Harmonization of
accounting standards
BENEFIT
MULTINATIONAL
COMPANIES

16. Systematic review and evaluation of the
company performance
 Communication within the groups become easier
 Monitoring business operation and take
corrective action

17.  Increases comparability of company
performance against domestic and
international peers
 Financial statements presented on same basis
 Analysis of competitive and operational can be
conducted easier

18.  Attract capital from a larger pool of
investors
 Differences in financial reports reduced
 Better quality and credibility of financial report
 Investors understand and confidence

19.  Reduce reporting costs
 Simplified consolidation of financial statements
of foreign subsidiaries
 Accountants only require knowledge for common
accounting practices

20. Easier to move accounting staff
between foreign subsidiaries
 Increase mobility of accountants
 Not need outsource accounting tasks
 Better respond and manage human capital needs of
subsidiaries

21. What MASB Do???
- Align two sets of standards

22.  Renamed as Financial Reporting
Standards (FRS) & Renumbering
the standards
 Correspond to international
standards
 Example:
>> IFRS 1 to 5 are FRS 1 to 5
in Malaysia

23.  Introduced a two-tier reporting
framework
 For non-private entities:
>> Financial Reporting Standards (FRS)
 For private entities:
>> Private Entity Reporting Standards (PERS)

24.  FRS made identical to IFRS and 10
revised accounting standards issued
 Removed all remaining differences
>> Local guidance and editorial matters

25.  Issued statement about the fully
convergence plans with IFRS
 Ensure companies have sufficient time to
prepare
 Ample time frame was necessary to adopt
remaining standards

26.  Issued Malaysian Financial
Reporting Standards (MFRS)
 Fully IFRS-compliant
framework
 Equivalent to IFRS

27. What is the impact??
- Arising from new
Financial Reporting
Standard

28.  Increase the transparency of financial
reporting
 Provide more disclosures
More flexibility in financial reports
 Principle-based standard
 To determine stock option value:
>> Not only use option pricing model
>> Allow for use of valuation techniques

29.  Increase the credibility and reliability
 High quality and consistency reports
 Increases the ability of foreign investors and
analysts to understand

30.  Greater comparability
 Sets limits on the alternatives allowed for
similar transactions
 Facilitates comparison between Malaysian
companies with foreign companies

31.  Small companies bear a higher cost
 Lesser resources to handle the
implementation and training