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Strategic Management Accounting W12 Essay

1089 words - 5 pages

ACCG330: Strategic Management Accounting

LECTURE 12
CONTROL PROBLEMS AND PRACTICES IN MULTINATIONAL ORGANISATIONS

ACCG330
Readings: Anthony & Govindarajan (2007, pp.678-696)

ACCG330 Strategic Management Accounting Session 1, 2012

Learning Objectives
1. Describe management control problems and practices in multinational corporations. 2. Explain problems and issues associated with global organisations:
i. Cultural differences and their impact on management controls. ii. Transfer pricing and related issues in multinational corporations. iii. Effects of exchange rates on multinational corporations and control system design issues.

ACCG330 Strategic Management Accounting ...view middle of the document...

– Organisational climate, or the overall atmosphere as reflected by the way that participants interact with each other, conduct themselves with customers, and feel about the way they are treated by higher-level management.
ACCG330 Strategic Management Accounting Session 1, 2012

Types of cultures
Clan (Friendly) Hierarchy (Formal)

Adhocracy Market (Competitive) (Creative)

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Effect of culture on controls
• Individualism – prefer individual oriented rather than group oriented work arrangements, performance evaluations, and compensation • Collectivism – prefer group work and rewards based on corporate performance (less likely to see dysfunctional behaviour) • High (low) uncertainty avoidance – more (less) elaborate formal planning and budgeting systems; more rigid performance standards and less subjectivity in performance evaluations.
ACCG330 Strategic Management Accounting Session 1, 2012

Effect of culture on controls
• High power distance – accept centralization more and less participation in decision making • Low power distance – higher decentralization and participation. • Masculine – greater desire for achievement, stronger focus on performance, relative performance evaluations, and performance based incentives • Feminine – prefer allocations based on need; performance is secondary to the weel being of employees
ACCG330 Strategic Management Accounting Session 1, 2012

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Transfer Pricing in MNCs
• Transfer Price: are the prices that related entities (within a MNC) charge each other for transfer goods, services. • Often MNCs try to control foreign transfer prices almost entirely by corporate headquarters. – Encourage offshore managers to make decisions that maximise the long-run profitability of the overall firm. – Minimise costs and maximise cash flow. • Management control systems use transfer prices to coordinate the actions of subunits and to evaluate their performance.

ACCG330 Strategic Management Accounting Session 1, 2012

Transfer Pricing in MNCs
Determinants of Transfer Prices
1. Economic & political conditions in the foreign country 2. Market conditions in the foreign country 3. Competition in the foreign country 4. Reasonable profit for foreign affiliate 5. Import restrictions 6. Customs duties 7. Price controls 8. Exchange controls 9. Local income taxes 10.Taxation in the foreign country
ACCG330 Strategic Management Accounting Session 1, 2012

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Transfer Pricing in MNCs
• Setting Transfer Prices
– Market-based transfer pricing: • Arm’s length standard (Comparable Uncontrolled Price) – Nonmarket-based...

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