Challenges of Accounting in Global Organization Assignment Help

Introduction

 

Global organizations amid these challenging times have come across with need of doing more with less. One can see the impact of this need extending to all departments however, the accounting and finance functioning of companies are rising to the challenge. Multi-entity organizations operating from multiple locations are more likely in facing complications in smooth execution of their financial exercises. These complexities might range from decentralized payables, inter entity transactions, multiple currencies, and global consolidations further enforcing global firms in developing a financial management system that is purpose-built. The need to maintain a strong financial system rises grows along with business expansions. Streamlining processes and improving productivity for costs reduction is the single most critical challenge accounting and financial professionals in global organizations face. Efficiently running a global business, implementation and upgradation of information systems, and establishing connection amid the finance team and the front office are other key concerns. To better understand the challenges of accounting global organizations face Nestle S.A, which is largest Food Company in the world has been considered as the case study. Being a global company Nestle caters to 191 countries extending its reach to wider customer base (Forbes, 2017). With $229.5billion net worth Nestle for effectively managing its revenues, profits, assets, equities etc. had developed an internal database for meeting its need of extracting relevant data whenever required for global operations. However, the employees often have to deal with various accounting challenges in order to integrate the operations spread across the globe.

   

Project Objective

 

The key project objective of this report is identifying the accounting challenges Nestle S.A faced in its global operations apart from examining how it affected the execution of finance and accounting functioning across all its geographically diverse operating units. The existing software or enterprise solutions used by the food company will be identified and evaluated for determining the improvement measures, if possible or suggest better accounting software and evaluating how its use will help the accounting professionals at Nestle is the objective of this project. 

Project Scope

The project scope of this business research report is dealing with Nestle’s in-house database with intent to improve the accounting challenges it faces while executing global operations. In addition, the measures suggested for amending or replacing the software used currently will be evaluated. The primary scope of this project is analysing the accounting challenges of Nestle and accordingly identifying its remedies.

Literature Review

 

Emergence of globalization has made the global market as one large marketplace further placing new demands on multinational companies in providing decisive information for informing policies in the world economy, which today is increasingly interdependent. Over the years internationalisation has been considered important for business practices enticing accounting to develop an international regulatory framework for facilitating this. According to Nobel Prize winner in Economics Joseph Stiglitz, globalization has become the most demanding issue. Although globalisation leads to several dimensions, discussions often revolve around history, structure, putative benefits and failings of emerging global economic system. It eventually has affected accounting immensely pushing global organizations towards an age where attempts are made in developing global regulation related to accounting and financial information in financial statements. The trade policies and regulations related to accounting, taxation and other legal proceedings differs from country to country enforcing Nestle in complying to different accounting guidelines, which becomes a daunting task for its accountants who regularly need to gather data from all global units for preparing accurate financial management reports in accordance to GAAP (Generally Accepted Accounting Principles) or IFRS (International Financial Reporting Standards) accounting standards to streamline the overall accounting operations. Finance and Accounting system is an integral part of Nestle’s business processes (Burritt and Schaltegger, 2010).

Business accounting has evolved on a national basis further reflecting a country’s culture where Nestle operates. Moreover, capturing the respective economic circumstances of a country is what national accounting principles seek to. Growth of the unforeseen model of accounting emphaiszes that accounting principles are formed  in line with national crisis or pressure. The influence of neighbouring country is another variable of national accounting principles. With countries become regionally integrated (European Union, NAFTA), cross-border ties is recently see driving accounting harmonisation. With the world becoming a global market orgnaizations are witnessing rise in efforts of harmonizing accounting practices and principles thereby, growing popularity of convergence rather than standardization of accounting. The need to cultivate competent cross-border transactions and redcuing the accounting challenges global companies like Nestle face has resulted into this drive towards harmonization, which was mainly led by International Accounting Standards Board and European Union. The accounting principles of EU are regionally developed comapred to IASB, which through voluntary compliance sets global accounting principles. International Accounting Standards, which today is embraced by  many multi-nationals inlcuding Nestle have been issued by IASB. Despite of  encountering difficulties and opposition of the US GAAP, IAS has emerged as effective international standard (Zeff, 2012).

Compliance to different accounting standards has further raised the complexities of Nestle’s corporate accounting structure raisng problems in the year ending financial reporting. The accounting team have to deal with issues revolving around how to manage transactions in different currencies, what measures for assets and liabilities to use while assembling final reports and what methods and processes of consolidation to use. A reporting problem like at what foreign currency exchange rate must a transaction is rendered to incorporate in the financial statements raises because of the fluctuations in exchange rates during the period of normal accounting. Exchange rate during transactions might differ from when the financial report is prepared. Other accounting issues Nestle faces revolve around the costing procedures. Take for example, developing countries like India and Bangladesh to name a few have permitted Nestle to operate for deriving benefits (employment and taxes) from the operations however, it often had to face criticism for loading its operational costs on these developing countries, resulting into zero profit and taxes (Osadchy and Akhmetshin, 2015).

It has been observed that the company fails to manage its accounting functions with the help of a suitable business enterprise solution and is largely dependent on custom accounting software it accidently has designed with growing business. Nestle’s in-house accounting software is incompetent in tackling its global accounting functions further creating problems for the employees. Business operations in multiple countries not only results into differing accounting standards but also comprises of discrepant relations with shareholders further impeding funds raising from financing communities, individual investors and the government. Moreover, variations in multinational taxation, US taxation of foreign-source earning, corporate income tax and indirect taxes like Value-Added Tax, withholding tax, and miscellaneous taxes on business transactions are other accounting challenges Nestle regularly deals with. The custom accounting software Nestle uses in not efficient enough to deal with different accounting issues and challenges professionals face while executing the global operations hence, it is recommended to adopt an enterprise accounting solution say for example, SAP ERP, for smooth-running of core accounting and other business processes influencing accounting namely finance management, inventory control, order and purchase, payroll and human capital management etc. (Markelevich, et al., 2015). SAP ERP is designed to tackle all the hassles of financial management, customer experiences, services, sales, marketing and HR. Use of this software will assist the accounting team to connect all customer-related data including accounting into one single platform further empowering Nestle clearly viewing data and workflows. Apart from accounting and financial management features like CRM, Project management, HRM, Resource, Workforce, and Talent management are inbuilt. Visibility, automation, streamlined processes, cross-departmental collaboration etc. are few benefits of using an enterprise accounting software.

Research Question

Primary Question

·         What are the current accounting issues Nestle faces?

 Secondary Questions

·         How the identified accounting challenges affects Nestle?

·         Which business accounting software can help Nestle in effectively dealing with the accounting challenges?

Research Design and Methodology

 

For gathering applicable data and information that is required for proceeding with the research two types of research methods namely qualitative research and quantitative research have be followed.

Qualitative research

A questions set that will be asked to the respondents in face-to-face interviews is prepared and once the questions are set, suitable respondents are identified followed by determining the sample size. The chosen respondents are then interviewed for gathering relevant data, which is then interpreted and evaluated. The outcome is then finally presented (Creswell and Creswell, 2017).

Reliability and validity

To ensure that the data collected while executing the research is reliable and valid, it is important that components like research methodology; sampling technique and time frame not only meets its needs but ensure that participants do not respond under others influence for deriving accurate result.

Sampling: The sampling technique used in this research is non-probability such as purposive sampling.

Sample size: Qualitative analyses can be done by using a sample size which is small but large enough to obtain sufficient feedback. In this research the sample size chosen is 50.

Data collection method: Methods like in-depth interviews and discussions are used in this research for collecting qualitative data (Creswell and Creswell, 2017).

Variable specification: In this research independent variable is Nestle’s business nature whereas enterprise accounting software’s effectiveness is the dependent variable.

 

Quantitative research

The very first step here is to decide the theory followed during the research. Once it is done hypothesis is set, process and measures are identified and selected, which is followed by choosing right respondents. The data is the collected and analysed for deriving final outcomes (Creswell and Creswell, 2017).

Research instrument: Questionnaires and surveys to get statistical data will be used in this research method.

Quantitative data analysis: For analysing the quantitative data the first process will be data cleaning followed by data coding, presentation, interpretation and finally discussion.

Sampling and sampling size: Quantitative method aims to generalize the population for which random events are chosen hence, probability sampling technique like simple random sampling will be chosen. To attain optimum result 100 respondents from Nestle will be considered.

Interview and questionnaire design: A questionnaire highlighting the existing and potential accounting challenges global organizations face will be designed and distributed amongst the 100 respondents.

Reliability and validity: Consistency as a key aspect will be adopted throughout the execution of the quantitative research process in order to enhance its reliability and validity. In addition, content validity approach will also be followed (Creswell and Creswell, 2017).

Research Limitations

 

Although this research has effectively indentified the accounting challenges global organizations like Nestle S.A face, diagnose the incapability of customer accounting software in handling the different in standards of accounting practices in different countries, it lacked to determine the précised reasons whether the current trend of firm consolidation is actually a solution problems accountants face.

Time Schedule

 

 

Activities

Time Schedule

1.

Choosing  research subject

2 months

2.

Literature review (identify gaps, project’s specific aim based on research’s vision, plan, preliminary data results)

 

4 months

3.

Research methodology

2 months

4.

Data collection

2 months

5.

Data analysis

2 months

6.

Report writing

2 months

7.

Report submission

3 weeks

 

 

 

 

 

 

 

 

Gantt chart

 

Activities

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Dec

Choosing  research subject

 

 

 

 

 

 

 

 

 

 

 

 

Literature review

 

 

 

 

 

 

 

 

 

 

 

 

Research methodology

 

 

 

 

 

 

 

 

 

 

 

 

Data collection

 

 

 

 

 

 

 

 

 

 

 

 

Data analysis

 

 

 

 

 

 

 

 

 

 

 

 

Report writing

 

 

 

 

 

 

 

 

 

 

 

 

Report submission

 

 

 

 

 

 

 

 

 

 

 

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Conclusion

 

Finally, it can be concluded that global organizations no longer simply focus on import and export. An understanding that the nature of trade and ownership has become global, the idea of domestic and overseas operations has been replaced. With large organizations adding subsidiaries in multiple countries, forming partnerships, engaged into global cross-border debt financing and listed shares on multiple stock exchanges globally, MNCs like Nestle are regularly facing various accounting challenges to streamline the entire business process. The report highlights how Nestle being a global business faces reporting challenges mainly revolving around consolidating global subsidiaries and accounting global transactions denominated in different currencies.

Reference List

 

Burritt, R.L. and Schaltegger, S., 2010. Sustainability accounting and reporting: fad or trend?. Accounting, Auditing & Accountability Journal23(7), pp.829-846.

Creswell, J.W. and Creswell, J.D., 2017. Research design: Qualitative, quantitative, and mixed methods approaches. Sage publications.

Forbes. 2017. Top Market Performers. (Online). Available at: https://www.forbes.com/companies/nestle/  (Accessed on 20/1/2018)

Markelevich, A., Riley, T. and Shaw, L., 2015. Towards Harmonizing Reporting Standards and Communication of International Financial Information: The Status and the Role of IFRS and XBRL. Journal of Knowledge Globalization8(2).

Osadchy, E.A. and Akhmetshin, E.M., 2015. Accounting and control of indirect costs of organization as a condition of optimizing its financial and economic activities. International Business Management9(7), pp.1705-1709.

Zeff, S.A., 2012. The Evolution of the IASC into the IASB, and the Challenges it Faces. The accounting review87(3), pp.807-837.

 

 

 

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