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Accounting Issues Currently Challenging Global Manufacturers

In: Business and Management

Submitted By jameen3
Words 1892
Pages 8
The financial statements of a global manufacturing firm differ from those in the service or merchandising industry primarily with transactions related to material, labor, and overhead. A manufacturing company has three basic inventory accounts: raw materials, work in process, and finished goods. (Goosen, pp. 31-46) Because the cost of goods manufactured is critical, a manufacturing company typically has a statement called cost of goods manufactured. The accounting for overhead in a manufacturing firm involves many complexities as does measuring and assigning values to the various components. In addition, a global manufacturer needs to adhere to the local reporting rules and regulations. Maintaining consistency across all manufacturing locations is one of the largest issues facing global manufacturers.

International Financial Reporting Standards (IFRS)

With the trends of globalization, there is a growing acceptance of IFRS. The IFRS aims to harmonize financial reporting across borders. (The Economist, 2007) Over 110 countries already require or permit IFRS reporting. The underlying assumptions of the IFRS standards and framework are that assets should be valued at the price which it could be currently sold, rather than on a valuation technique. The effect of transactions and other events is recognized when they occur, not as cash is received or paid. Finally, the financial statements are prepared on the basis that an entity will continue in operation for the foreseeable future. (QAD2, p. 5) In the US, the Securities and Exchange Commission (SEC) is moving away from requiring only US GAAP reporting to accepting IFRS reporting and will soon announce a timeline to require IFRS standards in the long term. (QAD1, p. 5) Global manufacturers need to adopt a consistent method of reporting across all manufacturing sites. It starts with replacing...

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