International financial reporting and multinational organizational accounting are used to create a consistent set of rules for financial statements worldwide. Businesses use them when they conduct operations in a large number of countries. Successful international reporting and accounting requires consideration for exchange rates and the variances, which is why businesses should use the help of an experienced accountant. Continue reading to learn more about the importance of international financial reporting and multinational organizations accounting and how the
California business CPAs from Cook CPA Group are available to help businesses manage international finances.
International Financial Reporting for California Businesses
Businesses that conduct operations on an international scale need to follow the International Financial Reporting Standards (IFRS). The IFRS is a set of common rules that allow financial statements from different countries to be reliable and transparent as they establish and maintain stability in the global economy. The IFRS levels the playing field so that statements can be compared, which enables businesses and investors to make well-informed decisions and analyses. Essentially, the IFRS is a common language that promotes consistency between companies in different countries around the world.
The standards included in the IFRS are issued by the International Accounting Standards Board (IASB), which is an independent body that exists solely to specify how companies must conduct their international accounting. They are responsible for developing and pursuing the technical agenda of the IFRS, making sure that the preparation of the IFRS follows the process stipulated in the Constitution.
The IFRS sets mandatory rules on a variety of accounting activities. The IFRS dictates the ways that businesses must make statements on their financial position (the components of a balance sheet), comprehensive income (this may be either one statement or two separate statements for profit and loss), changes in equity (the company’s change in earnings during any given financial period), and cash flow (the company’s financial transactions over a given period). The IFRS also requires companies to provide a summary of their accounting policies.
Businesses should note that the standards dictated by the IFRS often differ from individual countries’ General Accepted Accounting Principles (GAAP). The IFRS, for example, has different requirements from defining and reporting revenue, so a company’s balance sheet may look different under the IFRS system than it does according to their country’s GAAP. Other differences lie in the IFRS’ definition of an expense and how expenses are specified, among other things.
Multinational Organizations Accounting
A multinational company is a company that has operations in multiple countries. This may mean that they manufacture in multiple countries, operate supply chains, or operate physical stores or service facilities. With a globalized marketplace, conducting business in multiple countries is advantageous for many companies—operating across borders can allow businesses to grow at an accelerated rate, expand their activities, and increase profits.
While companies can reap benefits from conducting business in multiple countries, doing so poses many challenges, all of which can be overcome with the help of an accountant who specializes in international financial reporting and multinational organization accounting. One of the main challenges faced by multinational organizations is accounting for the foreign currency exchange rates used by the countries in which they do business. Since the rate of exchange of currency between countries fluctuates constantly, companies need the help of an accountant who can keep a close eye on these differences. Other challenges that multinational organizations face pertain to the availability of materials and labor, regulation of manufacturing, tariffs, and import/export quotas. Additionally, multinational corporations face a much higher risk of being affected by political changes in the countries they do business in than domestic corporations.
Interest-Charge Domestic International Sales Corporations (IC-DISCs)
If your company exports products to other countries, you may be classified as an Interest-Charge Domestic International Sales Corporation (IC-DISC). Companies that manufacture products in the United States and then export them to other countries can benefit by being an IC-DISC through tax savings. IC-DISC classification is a way to incentivize businesses to export their products to increase their ability to compete on a global scale.
IC-DISCs can defer up to $10 million on their export sales. IC-DISCs may also convert their income into qualified dividend income, which has a lower rate. To qualify to be an IC-DISC, companies must have only one class of stock, they must maintain accounting records that are separate from their other business entities, and its tax year must conform to the tax year used by the principal shareholder that has the greatest percentage of voting power. Businesses can elect themselves for IC-DISC classification by filing Form 4876-A, which can be done with the help of an accountant.
How an Accountant Can Support You With International Accounting
Regardless of the reach of your company’s international operations, the accountants from Cook CPA Group are prepared to help you with your international financial reporting and your multinational accounting. We can help companies by performing
tax audits of their financial statements to ensure that they are in accordance with the IFRS, prepare transfer-pricing studies to assess the prices of transactions with companies in other countries, provide tax-efficient structuring of your company, and help you with corporate state tax preparation with consideration for your international activity.
International Accounting Services Available for Companies in California
If your business needs help with international financial reporting and multinational organizations accounting, get in touch with the
California accountants from Cook CPA Group. Our accountants can put their skills and expertise to use to help your business manage its finances in other countries.
