1. International Accounting, 6/e
Frederick D.S. Choi
Gary K. Meek
Chapter 10: Managerial Planning and Control
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2. Learning Objectives
What are the critical dimensions of business modeling?
What is involved in measuring the returns on a foreign investment. How does it differ from the domestic case?
How does one calculate a multinational company’s cost of capital?
Are there any issues involved in designing multinational information and control systems?
What is financial control and what are some international control issues?
How does Kaizen costing differ from traditional standard costing concepts?
What is involved in an exchange rate variance analysis?
What issues do managers face in evaluating their foreign operations?
What are some approaches employed by multinational companies to cope with exchange rate changes and inflation in performance evaluation of foreign operations?
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3. What Are the Critical Dimensions of Business Modeling?
Identifying key factors likely to affect the future progress of the company.
Forecasting future developments and assessing the firm’s ability to undertake appropriate responses.
Developing information systems to support strategic choices.
Translating selected options into specific courses of action.
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4. Planning Tools - WOTS-Up Analysis
Involves assessing corporate strengths and weaknesses as a basis for strategy formulation.
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6. Planning Tools - Capital Budgeting
Involves analyzing the benefits and costs of a proposed investment.
Multinational adaptations of traditional investment planning models:
Home country vs. host country perspective. Return perspectives may vary owing to:
Repatriation restrictions
Licensing fees and other payments
Differing rates of inflation
Foreign exchange risk
Differential taxes
Measuring expected returns is more complex owing to:
Choice of project vs. parent cash flows
Choice of financing
Subsidized financing
Political risk
See Exhibit 10-2 on the next slide.
Measuring the cost of capital is complex due to:
Foreign exchange risk.
Inflation risk.
Differential taxation.
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8. Issues in Designing Multinational Information Systems
Why is the design of management information systems so complicated in an international setting?
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10. Issues in Designing Multinational Information Systems (contin)
Systems issues
Geographical distance
Corporate strategies
Low dispersal/high centralization
High dispersal/low centralization
High dispersion/high centralization
Global competition
XBRL
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11. Issues in Designing Multinational Information Systems (contin)
Information issues
Cultural differences
GAAP restatements
Currency translation
Hyperinflation
Overstating or understating revenues and expenses
Reporting translation gains and losses that are difficult to interpret
Distorting performance comparisons over time
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13. What is Financial Control?
Financial control: a measurement and communication system that assures that all of a firm’s organizational units work toward the accomplishment of enterprise goals as opposed to working at cross-purposes.
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14. What is Financial Control? (contin)
How is financial control achieved?
Communicating financial goals throughout the organization.
Specifying criteria and standards for evaluating performance.
Monitoring actual performance.
Communicating deviations between actual and expected performance to those responsible.
Issues?
Should control systems be tailored to the local environment?
Unforseen consequences of environmental diversity.
Language
Attitudes toward risk and authority
Differences in need achievement levels
Diversity in business practices
Governmental regulations
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15. Operational Budgeting
Local vs. parent currency perspectives
Exchange rate combinations to establish foreign currency budgets and monitor performance
To establish budgets
Spot rate in effect when budget is established
Projected rate
Ending rate
To monitor performance
Initial spot rate
Managerial responses to exchange rate combinations
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16. Operational Budgeting (contin)
Two-way variance analysis
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17. Operational Budgeting (contin)
Three-way variance analysis
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19. Strategic Costing Cost control using standard costing systems
Estimated production costs vs. actual production costs
Target costing
Price-based costing
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20. Strategic Costing (contin)
Kaizen costing
Continuous cost reduction
Behavioral costing
Cost allocations to encourage cost reduction
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21. Performance Evaluation Issues
Objectives of performance evaluation
Align managerial behavior with strategic goals.
Measure profitability of organizational units.
Identify sub-par performance.
Allocate corporate resources optimally.
Evaluate managerial performance.
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22. Performance Evaluation Issues (contin)
Unit vs. managerial performance
Non-controllable influences on unit performance
Headquarters management
Host government
Parent country’s government
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23. Performance Evaluation Issues (contin)
Performance criteria
Financial vs. non-financial
Measurement issues
Inflation distortions
Cost of goods sold understated
Capital employed understated
Returns on capital doubly overstated
Spurious comparisons of divisional performance
Meaningless inter-country performance comparisons
Invalid performance comparisons over time
Performance evaluation practices: ICI vs. GE
Performance standards
Foreign subsidiaries should not be evaluated as independent profit centers when their mission is strategic.
Company-wide ROI criteria should be supplemented by performance measures tailored to the mission and local operating environment.
Performance budgets should take into account each unit’s internal and external environment.
Subsidiary managers should not be held responsible for non-controllable events.
Subsidiary managers should participate in the budgeting process.
Both financial and non-financial measures should be used in multinational performance evaluation systems.
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24. Other Chapter Exhibits
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25. Other Chapter Exhibits (contin)
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