Steady transformations in global trade and investments, as well as increased cross-border merger and acquisition activities mean that financial stakeholders need to develop reliable nondomestic financial statement analysis skills. To assess the financial viability of overseas investment, it becomes important for financial managers to undertake cross-border financial comparisons ( Choi & Meek, 2008 ). Financial analysts are advised to use the internet to gain access to reliable macroeconomic and company-specific data, to meet with company management where there are no incentives to disclose financial information, to restate foreign accounting measures where there are cross-country financial principles variances, to standardize information content by translating foreign currency data, and to interpret financial statements into their preferred languages in the presence of language and terminology barriers.
The readers of nondomestic financial documents should utilize the World Wide Web to access reliable macroeconomic and company-specific data. Although Choi and Meek (2008 ) recommend that financial managers and other stakeholders should also prioritize travelling as a way of developing foreign industrial and market knowledge, it sometimes proves cumbersome and expensive. Therefore, the internet can be a great resource in this endeavor. For instance, the Cross Border Capital website provides users with currency markets reports that cover over seventy countries. Often, such websites offer free registration services, meaning that much of the financial information can be accessed by anyone and at their own convenience.
Delegate your assignment to our experts and they will do the rest.
Secondly, where companies in emerging markets lack strong incentives to fully disclose financial information, analysts are advised to arrange for meetings with company management. Choi and Meek (2008 ) explain that such meetings enable analysts to access valuable company-specific financial data since such information in these markets is closely held and corporate leaders are not required to disclose the same unless coerced to.
Furthermore, cross-country variances in accounting principles can also be tackled by “restating foreign accounting measures to an internationally recognized set of principles” ( Choi & Meek, 2008, p. 291 ). Accounting information from a particular country can be readjusted to suit the accounting principles in another. Through this method, international uniformity is achieved. However, financial analysts should limit financial restatement to solving non-uniformities in accounting standards and deviate from fraudulent restatements as this go against the GAAP principles ( Ettredge, et al., 2010) .
Currency exchange rates are also constantly changing and it is suggested that financial analysts should translate foreign currency data to standardize the information content. Choi and Meek (2008) endorse the use of single base year or year-end exchange rates to translate the information. The use of such methods can ensure that exchange rates errors are minimized. In the long run, these methods are also convenient to readers of financial statements, thus, limiting chances of misinterpretation.
Finally, language and terminology barriers can be maneuvered by seeking translations of financial statements into one’s preferred language. Although differences in financial language and terminology is not much of a problem today, it may limit the performance of inexperienced financial analysts. However, companies in developing markets may lack the incentives to issue out translated versions of their financial statements. As such, financial analysts are advised to request for translated versions or go the extra mile and spearhead the creation of the same.
In conclusion, financial analysts are advised to use the internet to gain access to reliable macroeconomic and company-specific data, to arrange meet with company management where there is no incentive to disclose financial information, to restate foreign accounting measures where there are cross-country financial principles variances, to standardize information content by translating foreign currency data, and to translate financial statements into their preferred languages in the presence of language and terminology barriers.
References
Choi, F. D., & Meek, G. K. (2008). International accounting . Pearson Education.
Ettredge, M., Scholz, S., Smith, K. R., & Sun, L. (2010). How do restatements begin? Evidence of earnings management preceding restated financial reports. Journal of Business Finance & Accounting , 37 (3 ‐ 4), 332-355.
