Critical Thinking Cases
Bristow Inc. is interested in establishing a presence in Country Y. Bristow is expecting demand for several of its products to increase in that country because a major customer, Kale Enterprises, is building a manufacturing plant in Y. Bristow has been supplying Kale's other foreign manufacturing operations mainly through exporting. However, shipping costs and long delivery times have been troublesome for both companies in the past. Bristow has also identified several other companies native to Country Y as potential customers.
Bristow currently has operations only in the United States. Kale Enterprises is a successful global company with operations in over 20 countries. Bristow's managers have identified the following possible options:
a. Simply export to Country Y.
b. A company in Y has expressed an interest in licensing Bristow's technology and has the capability and capacity to produce the products used by Kale.
c. A joint venture with Kale may be possible, but managers for Kale would be willing to enter into an agreement only if substantial control for Bristow's operations is given to Kale managers.
d. Bristow's managers have located a company that could be purchased and operated as a subsidiary. The company currently produces products similar to Bristow, but it is using outdated technology.
Instructions
Discuss what factors should be considered when choosing among the given options. Develop a list of additional information you believe would be useful in making the decision.
The International Organization of Securities Commissions (IOSCO) is a group of top securities administrators from about 50 countries. The Securities and Exchange Commission (SEC) is a member of IOSCO. IOSCO is a primary supporter of the internationalization of financial reporting standards through the International Accounting Standards Board (IASB). Arguments for and against internationalizing financial reporting standards include the following:
For:
Having the same accounting standards for external financial reporting for all securities markets will reduce misunderstandings and create comparable information. For example, investors will be able to compare the financial reports of similar companies located in the United States with those located in China and decide where best to allocate their investments. One set of accounting standards will also save corporations money because they will not need multiple sets of books to track their international operations.
Against:
Requiring companies that list on all global securities exchanges to use the same external reporting requirements will mislead investors. For example, in countries where the majority of investment funds come from banks in the form of long-term borrowing, debt-to-equity ratios will look very different than those of comparable U.S. firms. Accounting information must reflect its environment. Besides, as all business becomes global, reporting requirements will naturally evolve to what investors demand.
Instructions
Write a one-page summary reflecting your opinion about the internationalization of financial reporting standards.