A multinational company generally has offices and/or factories in different countries and a centralized head office where they coordinate global management. A multinational company (MNC)is a corporate organization that owns or controls the production of goods or services in at least one country other than its home country.
Due to advent of information age and globalization, the traditional hierarchy of the industrial age is rapidly disappearing and new large groups that are spread across the globe are fast emerging. A multinational corporation is a company with headquarters in one country but they operate in many countries. The post Second World War period saw the rapid growth of multinationals in Europe, America and Japan. As the world economy is opening up with a fall in regulatory barriers to foreign investment, better transport and communications, freer capital movements, etc., international companies are finding it easier to invest where they choose to cheaply, and with less risk. With the advent of globalization, companies started expanding to international markets and establishing marketing, manufacturing, or research and development facilities in several foreign countries.
A multinational company generally has offices and/or factories in different countries and a centralized head office where they coordinate global management. A multinational company (MNC)is a corporate organization that owns or controls the production of goods or services in at least one country other than its home country. One of the first multinational business organizations, the East India Company, was established in 1601. After the East India Company, came the Dutch East India Company in 1603, which would become the largest company in the world for nearly 200 years.
Some current examples are big multi national companies like Apple, Google, Amazon, Coca-Cola, Starbucks, IBM, FedEx, Accenture, Samsung or General Electric etc. Nestle and Shell Oil are two examples of European multinational. Most of the largest and most influential companies of the modern age are publicly traded multinational corporations, including Forbes Global 2000 companies.
A conglomerate is a combination of two or more corporations engaged in entirely different businesses that fall under one corporate group, usually involving a parent company and many subsidiaries. Often, a conglomerate is a multi-industry company. Conglomerates are often large and multinational.
Some of the attributes associated with these large multi-national corporations are:
They are dynamic organizations that are constantly changing and evolving, acquiring and merging many companies, opening their offices in all parts of world and operating under the ambit of ever-changing complex organizational structures.
Fundamentally a corporation must be legally domiciled in a particular country and engage in other countries through foreign direct investment and the creation of foreign branches or foreign subsidiaries.
All these large groups have smaller companies within them. The conglomerate may be constituted of different units which may represent separate legal entities constituted in different countries having multiple layers of ownership (which might be added to the group through mergers, acquisitions or could be joint ventures). Multinational corporations can select from a variety of jurisdictions for various subsidiaries, but the ultimate parent company can select a single legal domicile.
Global operations of these corporations are conducted with multiple subsidiaries, branch offices and joint venture partners working together, constantly evolving and changing their legal structures through mergers, acquisitions and takeovers. These subsidiaries and partners are responsible for their own P&L. They have their own Fixed Assets (such as assets held for the purpose of producing or providing goods/services) and their own markets where their own or their other group concern’s products are sold and eventually consolidate with the group.
Multinational corporations may be subject to the laws and regulations of both their domicile and the additional jurisdictions where they are engaged in business. In some cases, the jurisdiction can help to avoid burdensome laws. Corporations can legally engage in tax avoidance through their choice of jurisdiction, but must be careful to avoid illegal tax evasion. These MNCs should comply fully with all statutory and tax laws & regulations around the world and ensure payment of the correct amount of taxes in every country where it operates.
Aside from setting up a private limited company as subsidiary, foreign companies have two other options for entering the foreign market – a Branch Office or a Representative Office. Both are registered locally in the country of operations, follow local procedures, and need to pay official fees for registration.
Functional Organizational Structures
A functional organizational structure is a structure that consists of activities such as coordination, supervision and task allocation. The organizational structure determines how the organization performs or operates. The term organizational structure refers to how the people in an organization are grouped and to whom they report.
Learn the typical accounting cycle that takes place in an automated accounting system. We will understand the perquisites for commencing the accounting cycle and the series of steps required to record transactions and convert them into financial reports. This accounting cycle is the standard repetitive process that is undertaken to record and report accounting.
GL - Review & Approve Journals
Review and Approval mechanisms ensure that the accounting transaction is reasonable, necessary, and comply with applicable policies. Understand why we need review and approval processes, what are they, and how they are performed in automated general ledger systems. Learn the benefits of having journal approval mechanisms in place.
Understand what we mean by GAAP to STAT adjustments. This article discusses the different standards that are used for multiple representations of the financial results for global organizations. Understand the meaning of US GAAP, Local GAAP, STAT, IFRS, and STAT. Finally, understand why accounting differences arise and how they are adjusted for different financial representations.
Internally, an organization can be structured in many different ways, depending on their objectives. The internal structure of an organization will determine the modes in which it operates and performs. Organizational structure allows the expressed allocation of responsibilities for different functions and processes to different entities such as the branch, department, workgroup and individual.
Concept of Representative Office
A representative office is the easiest option for a company planning to start its operations in a foreign country. The company need not incorporate a separate legal entity nor trigger corporate income tax, as long as the activities are limited in nature.
GL - Unearned / Deferred Revenue
Unearned revenue is a liability to the entity until the revenue is earned. Learn the concept of unearned revenue, also known as deferred revenue. Gain an understanding of business scenarios in which organizations need to park their receipts as unearned. Look at some real-life examples and understand the accounting treatment for unearned revenue. Finally, look at how the concept is treated in the ERPs or automated systems.
For any company that has a large number of transactions, putting all the details in the general ledger is not feasible. Hence it needs to be supported by one or more subsidiary ledgers that provide details for accounts in the general ledger. Understand the concept of the subsidiary ledgers and control accounts.
Prepayments and Prepaid Expenses
Prepayments are the payment of a bill, operating expense, or non-operating expense that settle an account before it becomes due. Learn the concept of prepaid expenses. Understand the accounting treatment for prepaid expenses. Understand the concept by looking at some practical examples and finally learn the adjusting entry for these expenses.
In this article we will help you understand the double-entry accounting system and state the accounting equation and define each element of the equation. Then we will describe and illustrate how business transactions can be recorded in terms of the resulting change in the elements of the accounting equation.
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