Role of Management Accounting in International Firm

external ACCOUNTING Sources 1) Financial knowledge enables telephone exchange determine to determine what is fortuity in different subsidiaries. That enable the integration and control of subsidiaries by the central control. (Belkauoi, 1991) 2) precaution method of bill involvement in capital counsel is too important as the pas seuls in the exchange rates digest intertwine the fiscal results of the subsidiaries. (Eiteman, Stonehill and Moffet, 1992). ) direction accounting is a means of co-ordinating established configurations and its trope depends on the strategies a business truehearted adopts for configuration and co-ordination (Tomkins, 1991) 4) Study by Biles and Assada (1991) investigated how the Nipponese and Ameri stack ownership firms evaluated the performance of their subsidiaries. The US firms frequently used financial ratios for performance measurement. ROI was by far most important, whereas Japanese firms pay more than attention to individual line-items in the budget such as gross sales volume and production costs. ) Horovitz(1978) compared way controls between UK, French and German firms. He concluded that German and French firms tend to be more centralise than the UK firms. The control systems of German and French companies were more detailed than that of UK firms. 6) Holzer and Schonfelt (1986) illustrated that accounting systems of major European and US firms differ greatly and, although world(prenominal)isation affects their management accounting systems, it does not do so in a linear fashion. Factors 1) Configuration. ) Strategy. 3) bequeathpower of the firm. ROLE OF MANAGEMENT ACCOUNTING IN INTERNATIONAL FIRM The external firms have disperse configuration as their activities in the value compass are spread throughout the world. Therefore, the international firms use management accounting to co-ordinate and integrate their activities in different countries. The role and scope of management accounting differs in inte rnational firms depending upon the relationship between their subsidiaries and the strategy of their pass management. Porter 1986) classified international firms into the spherical firms, the multidomestic firms and the exporting firms. Both international and multidomestic firms have dispersed configuration but the former is an integrated unit whereas the latter is a conglomerate that achieves control by making its subsidiaries as independent of each other as possible. In a global firm, management accounting supports a dispersed configuration of the value range of mountains located across the world. The output of one subsidiary is an input of other subsidiary located in a different country.The dispersed view of subsidiaries call for extensive co-ordination and central management intervention in the affairs of the subsidiaries. By foc employ on global product-line profitability, the central management can use management accounting to establish an integrated organization. Vario us operations like production, sales, R&038D are positioned globally according to circumstantial locational advantage and they are integrated through extensive planning and budgeting activities. counsel accounting in an international firm is a finely tuned instruction mechanism. In contrast, there is little integration of subsidiaries in a multidomestic firma as they usually operate in different businesses. Therefore, they are relatively excuse to devise their own strategies and plans and to monitor their progress towards them. Central management monitors subsidiaries from a portfolio management perspective which evaluates subsidiaries superly on financial rates of profitability.Management accounting role in multidomestic firms is setting financial targets for sudsidaries and evaluating their performance using composite financial ratios like ROI( Return on investment), ROA (Return on assets) , RI (residual income) and roe ( return on equity). There is little emphasis on discip line which integrates activities across subsidiaries. International firms are exposed to exchange rates fluctuation risks. These fluctuations creates uncertain cash f menials in corporate currency and also can distort the performance of subsidiaries (Eiteman, Stonehill and Moffet, 1992).Therefore, the management accounting manage the currency risks in the international firms by monitoring the short-term transaction exposure to debtors and creditors, middling term budgeting of international cash flows and long term strategic currency and exposure concerns over the firms strategic planning period. Management accounting uses transfer pricing between subsidiaries in different countries in order to maximize international firms after-tax global profits. with transfer pricing firms may divert profits to regions where taxes are low (Radebaugh and Gray, 1993).The threat of this puts pressure on host governments to make and adminstor tax laws that benefits the firm. However, the firms want to be as independent of the individual location as is possible, to smirch the political risks such as change in government do substantial changes in host countrys economic policies. The management accounting plays a key and wide role in international firms. The information technology is improving and becoming cheap with the passage of time. That will further deepen the role of management accounting in the international firms.According to Belkauoi (1991), the financial knowledge resulting from management accounting has enabled the integration and control of dispersedly configured firms by the central control. The global firm is characterized by its large geographical reach and the considerable interdependence between its subsidiaries. Global firm uses management accounting to integrate its activities across the globe. On other hand, the multidomestic firms subsidiaries are quite independent in their activities.