Show me the money

Posted: October 17th, 2013





Case: Show me the money

Question one

Secondary statements are documents that describe the status of a company in a language that foreign investors can understand. More and more companies are coming up with secondary financial statements that reflect the exact requirements of their potential investors. A secondary financial statement is beneficial to a corporate issuer in that it allows them the opportunity to present their firm in the best light by highlighting points that are of value to the user. Preparing a secondary statement for Chinese investors would mean an opportunity to stress on qualities such as honesty and diligence that are important among Chinese. Another advantage of preparing a country-specific secondary statement is that it allows the corporate issuer to realign its structure, departments and employees toward a global direction. Foreign financial statements mean different accounting rules, taxation methods and increased diversity among customers and partners. Approaching foreign investors will increase the scope of the company significantly, as it will have to adopt national standards such as IFRS. The problem with developing a country-specific secondary statement is that the document becomes irrelevant to other prospective users. Secondary statements developed for Chinese users would make little sense for Russian investors and vice versa (Roberts et al 19). Accepting secondary statements from foreign companies is also beneficial to the users in that they get to analyze the products and services from other parts of the world. A user might be looking for owner production costs that might drive them to sample secondary statements from African-based companies that access cheap labor. Country-specific secondary statement are also advantageous to users in that they can compare the working capital, regulations and other details from different foreign companies. This is not possible in a universal secondary statement. The disadvantage of country-specific secondary statements to users is that they may miss better deals from other companies as the statements are tailor-made for their situation only.

Question two

Michael Kors responded to Heidi’s idea of preparing and issuing potential investors with U.S GAAP secondary statements by suggesting that they produce a universal secondary statement. Kors’ notion of creating a universal document for all users to access would be very detrimental to their company. This is because with the increased globalization, communication and transport systems, more and more countries are interconnected financially. As a result, they do not have to conform to European or American standards to transact business. Thus, each group of investors or users has unique features. They also operate in different environments and have different strengths and weaknesses. Developing a universal document would fail to capture some of the aspects that may be unique to one or two continents in the world (Roberts et al 34). As a result, Runway Corporation may fail to make a contract with any potential investor. Therefore, I disagree with the adoption of a universal document and support the drafting of a country-specific statement. Michael Kors had a bigger market and customer base in mind but did not consider how to make a connection with any of these numerous opportunities.

Question three

If I were in a position to decide which approach should be adopted, I would definitely side with Heidi Klum’s suggestion. The preparation of a secondary statement that has U.S Generally Accepted Accounting Principles gives investors a glimpse of what to expect when dealing with Runway Corporation and American economic systems. The economic regulations and protocols in the USA are very flexible, rewarding and fair and this would attract investors who will see the benefits of working with an American firm. Using a universal language in writing the secondary statements but the interested parties will eventually require a domestic document for further reference.

Work cited

Roberts, Clare B, Frederick D. S. Choi, and Christopher Nobes. International Accounting. Frenchs Forest, NSW: Pearson Education Australia, 2006. Print

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