Approaches to Transnational Financial Reporting

Approaches to Transnational Financial Reporting

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Abstract

Transnational Financial Reporting is a complex and multi-faceted process that demands professionalism and high levels of liability by accounting professionals. The preparation and submission of financial statements across borders requires an approach from the most apolitical nature of expertise to prevent problems that can occur owing to lack of accurate financial reporting. Accountants and those in management positions need to devise the proper ways through which they can relay financial information to all users with the minimal amount of prejudice. Agreeably, the development of one set of financial statements to be used worldwide is the best option to ensure proper transnational financial reporting.

Key Words: Transnational Financial Reporting, Financial Statements, Foreign Users

Introduction

Financial statements refer to the statements of account that organizations prepare illustrating the financial operations of the organization. Accordingly, accountants and the management team need to develop financial reporting systems to ensure that all company stakeholders are aware of the organization’s financial activities. For companies that have decided to globalize their business operations, a transnational approach to financial reporting is required to ensure that the presented financial statements are understood by all users irrespective of their locations (Wutsemann, 2004).

This paper highlights five approaches to Transnational Financial reporting, illustrating the advantages and disadvantages of each approach. The paper also justifies the preparation  of one set of financial statements based on worldwide accepted accounting as the best approach to Transnational Financial reporting.

Approaches to Transnational Financial Reporting

Economists and the international accounting committee have identified five main approaches to transnational financial reporting to ensure accurate accounting of financial statements in organizations. The first approach to transnational financial reporting is the correspondence of similar sets of financial statements to all company stakeholders in their various locations (Schroeder et al., 2010). With this approach, company accountants prepare a single set of financial reports with one common language and currency. The only advantage of using this approach is the reduction of the workload regarding the submission of financial statements to company stakeholders. The uniformity of financial reporting reassures stakeholders that the organization is providing accurate financial information. However, since this information is to be relayed to other foreign nations, the probability of misinterpretation of the financial records is high hence lack of trust by foreign stakeholders. The second approach to transnational financial reporting is the preparation of financial statements followed by translation of these statements into the different languages of the foreign nations’ users (Schroeder et al., 2010). This approach is advantageous because it limits the occurrence of financial misapprehensions by translation of the statements to a language that the foreign stakeholders can understand. However the process of transl.............