Write a cosultant address…………………
May 3, 2012
Philan manufacturing company
1 Main. St.,Worcester
Dear Ms. Anne ,
It is great honor of having hired us as the consultants for your company, the Philan manufacturing company. In our last discussion, you indicated to us that Phlilan is currently evaluating two initiatives that would turn it to “global” company by setting up a sales office in France and acquiring an interest an interest in a manufacturing company in China. With regards to this, you asked us to give you an advice about the potential positives and negatives of expanding globally. Base on your directions we have come up with the following advice and recommendations.
Complications of operating a global business
Operating a global business has some complication, complexities and challenges. Two of the complications that we have identified are as follows.
The changes in the currency exchange rates
Different countries do have different currency, with different rates of currency exchange. When Phlilan Manufacturing Company invests internationally, where the rate of currency exchange differs from that of the USA currency, there can be an increment or reduction in the return of the investment of the Philan manufacturing company (Adekola, Sergio, 65). This is because any type of an international investment will trade using the currency of their host country. This means that any revenue which will be received by such type of an international investment will be based on the local currency and will have to be converted to the USA currency by the investor. The conversion of the foreign currency into USA currency will either favor the international company or not depending on the strength of the USA currency. If the currency of the host country is sponger than the USA currency, there will be an increase in revenues for the US firm. On the other hand there will be a decrease in the revenue in case where the host country currency is weaker than the USA currency.
Overseas countries do have different system for the management of their trade (Adekola, Sergio, 67). The countries might have different trade reporting periods and also the level of technology employed within their market operation system might not be as advanced as that of the USA markets. Rules and laws which guide trade activities in these countries might significantly differ from those of the USA rules. This might result into Philan manufacturing company suffering from financial losses. Hence the foreign currency exchange rate should be considered by the Philan manufacturing company when investing globally.
We would also like to notify you that the US Generally Accepted Accounting Principles (US GAAP) and the International Financial Reporting Standard (IFRS) are different accounting principles. US GAAP is the financial is the kind of financial reporting which was developed and accepted by the USA government while IFRS is an internal concept which was developed by a combination of different countries across the world.
International Financial Reporting Standards is a financial principle that is designed by different accounting bodies worldwide. It set the procedure to be followed when reporting any form of financial statements, such as profit and loss account. The body which is responsible for IFRS is called International Accounting Standards Board.
An example of an area where US GAAP differs from IFRS is the area is in the inventory. Under the International Financial Reporting Standard, the concept of LIFO, which means last in first out, where firm records the last units purchased as the first unit sold is not allowed, while in the US Generally Accepted Accounting Principle, companies have the choice to between LIFO and FIFO (First in first out).
Progress toward convergence of accounting standards worldwide
The accounting bodies worldwide are working towards a common standard of financial reporting. The goal of working towards achieving a uniform way of financial reporting across the globe is to ensure favorable comparisons of the performance of different companies and countries worldwide. Severally accounting bodies have come up together to share their differences in the accounting principles with each other, try to find where there are major differences and make an informed choice of how to iron out the differences that exists so that they can come up with a uniform globally accepted means of financial reporting. So far several changes have been made and adopted by countries in regards to financial reporting standards.
With the view of the above clarification concerning the plans of your company, the Philan manufacturing company, to expand globally, we would therefore like to advice you to read the above suggestions and wherever necessary ask for any further clarifications from us. We would be glad to discuss with you in details the suggestions in this letter. For this we would like to request you to organize for a formal meeting between us and the management your company so that we can come up with away forward to your plans.
Signature of the consultant
Name of the Consultant
Name of the Company
Adekola, A, Sergio, B. Global business management: A cross cultural perspective. In innovative
Business text book. Ebook, 329. 2007. Print.
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