KW dt Ltd Business Issues - Assignment Example

Running head:Report Name: University: Course: Tutor: Date of Submission: Introduction Direct investment is considered to be an international method of trade in which a company gets an opportunity to establish a new foreign subsidiary company in a foreign country. Given the fact that KW dt Ltd has succeeded in exporting its products as a result of low manufacturing costs and increased demand for its products overseas its decision to invest in a manufacturing plant in Singapore will expand the business network (Belverd & Marian, pp.133-156, 2007). Through this method, KW dt Ltd will gain a direct market entry into Singapore hence expanding the existing market for its digital products. Since KW dt Ltd is considering to invest in Singapore as a way of expanding the existing market for its products overseas, it is necessary that the company considers various accounting as well as business issues before establishing its operation in Singapore. Business issues The first business issue which should be considered by KW dt Ltd is competition edge from both established digital multinational companies as well as other domestic firm’s in Singapore. Singapore is one of the countries which has a strong competition edge when it comes to digital products as compared to other countries due to its excellent reputation, good network and infrastructure as well as sophisticated banking systems. Additionally, Singapore is believed to be one of the countries which has centralized services in terms of information technology, Finance and Logistics (Craig, pp.34-56, 2007). The centralization of such services tends to provide multinational companies involved in Digital business with more benefits such as low operating costs. This in turn leads to high profits margins leading to consistent service levels, developed infrastructure for investors hence attracting more investors into Singapore hence attracting competition between the companies. It is therefore important that KW dt Ltd put in place proper strategies to deal with competition from other digital companies in Singapore before establishing its operation. This may include putting in place proper pricing strategies, advertising as well as product quality (Craig, pp.34-56, 2007). The second business issue which should be considered by KW dt Ltd is issues related to legal and political environments of both the host country which is Singapore and domestic country which in this case is Australia. Given the fact that KW dt Ltd is established in Australia and intends to expand its operations overseas by investing in Singapore then, it implies that KW dt Ltd is bound to both the legal laws of Australia as well as Singapore (Charles, pp.158-170, 2007). Different countries have various kinds of legal systems which imply that the legal system of Australia is totally different from that of Singapore and how it applies to businesses (Ramachandran, pp.7-90, 2007). Corporate laws regulating foreign companies in Singapore should be given a great consideration by KW dt Ltd as these laws affect many elements of marketing strategies in terms of product restrictions, pricing, packaging, quality control as well as specifications. Political systems of the two countries should be given a heavy emphasizes since unstable political situations tends to expose businesses to various risks including unstable foreign interest rates. KW dt Ltd therefore should put in place proper strategies to curb any changes in government regulations which may present a threat to the company operations (Yasmin, pp.66-70, 2007). Additionally, it is necessary that the company puts in place necessary modifications to the existing marketing strategies in response to political and government regulations. Differences in Culture is an other important issue which should be considered since culture plays a fundamental role when it comes to foreign investment as the elements which constitute it affect in one way or other on how exactly consumers think about the products. Singapore is a cosmopolitan society in which people live harmoniously as well as interact differently in among various races. This country has diversity in terms of language, religion as well as beliefs among other important factors which is quiet different from that of Australia. The common language spoken in Australia is English but Singapore there are several languages spoken which include; Mandarin, Malay, Tamil and English. Though, English is considered to be the most common language spoken in the country it may be hard for employees from Australia to successful work in this environment in terms of communication since many Singaporeans use Singlish which be hard to be understood (Yasmin, pp.66-70, 2007). This implies that KW dt Ltd should outsource most of its employees from Singapore once the business has been established since they understand their culture well and this will assist KW dt Ltd to deal with arising market uncertainties in Singapore more effective and correctly since they understand the impact of changing conditions on the business. This is much important because if KW dt Ltd selects managers from Australia to manage the subsidiary company in Singapore may lead to dramatic losses affecting the total profits. It is therefore necessary that the managers of KW dt Ltd understand in depth the culture and market operations of other digital companies in Singapore to avoid misinterpretation of events as well as wrong decision making process (Timothy, pp.50-60, 2006). The economic operations which comprises of both domestic and foreign investment policies should be considered. KW dt Ltd should ensure that it full understands the Australian Domestic policies and how they apply to a business operating internationally. These policies have a significant impact on foreign trade both positively and negatively hence it is necessary that KW dt Ltd fully understands there impact on the business before establishing its operations in Singapore. Not only are the domestic and foreign policies of Australia important it is necessary that KW dt Ltd also understands the economic operations of Singapore including its monetary rules, interest rate rules, investment rules and rules governing foreign transactions. Moreover, it is necessary that KW dt Ltd clearly understands the foreign exchange rules outlined by Singapore government when it comes to carrying business transactions in foreign currency. In terms of Economic conditions, KW dt Ltd should ensure that its completely assesses per capita gross national product (GNP) of Australia in relation to Singapore (Yasmin, pp.66-70, 2007). This may include a thorough assessment of living standards primarily as a way of treating a particular market that has not been discovered through market segment analysis. Through this, KW dt Ltd will be able to penetrate through the market hence overcoming its competitors more effectively. Additionally, it is very much important that KW dt Ltd identify any existing trade agreements between the countries both on local as well as regional economic conditions. This will help the managers of KW dt Ltd to understand the expected profitability of the expected market in Singapore (Belverd & Marian, pp.133-156, 2007). Accounting Issues The first issue which should be handled is the issue related to reporting of accounting transactions and the Accounting bodies concerned with these regulations among the two countries. To begin with , in Australia all firm’s operate under the rules and principles stipulated by International Financial Reporting Standards (IFRS) .The Introduction of IFRS standards in Australia requires that only few intangible assets be recognized for accounting purposes and assets such as goodwill be amortized for over the their life. The International Financial Reporting Standards (IFRS) in Australia therefore goes beyond companies’ financial systems as well as accounting systems. The adoption of IFRS in Australia therefore requires that companies identify and recognize intangible assets included in any acquisition differently from the goodwill arising from the firm’s assets acquired (Yasmin, pp.66-70, 2007). Additionally, IFRS standards in Australia requires that a firm reviews each of the intangible assets identified each year mainly to test whether the assets has been impaired or not. IFRS requires that firm’s reviews these standards mainly to ensure that the value of intangible assets rising from the investment if greater than the capitalized amount. This is quiet different from Singapore in which the accounting standards are regulated by Accounting Standards Committee (ASC) (Deloitte & Touch Singapore, pp.23-250, 2008).Additionally, it is quiet clear that before any principle or rule is enacted in Singapore, consultations are usually made in relation to IASB hence it is important that KW dt Ltd familiarize with the requirements in terms of International Financial Reporting standards before establishing its operation in Singapore. This is very much important before, these standards vary in terms of a firm’s making accounting transactions or entries in accounting books and they have a great effect on the firm both positively and negatively. The International Financial Reporting Standards may adversely affect the gross profits of the company as some allow depreciation to be added after taxation to the gross income while others treat depreciation differently (Belverd & Marian, pp.133-156, 2007). Secondly, the difference in taxation and how each country treats corporate tax in terms of foreign investments. Difference in taxation is an important issue which should be considered with heavy emphasizes as it affects the final Profit and Loss statements as well as the Net income expected by a firm (Shahrokh, pp.7-19, 2009). This implies that KW dt Ltd should identify the taxation system of Singapore and how it will affect its operations in terms of expected net profits. Studies indicate that Singapore uses territorial taxation system in which companies and individuals taxed in individual basis. Under this system its quiet clear that any income from foreign source is only taxed once the income has been remitted to Singapore in which only a non-resident individual is exempted from tax from source income when it is received in Singapore. The tax system in Singapore is regulated by the Inland Revenue Authority of Singapore (IRAS) which requires that a company established in Singapore is liable to corporate tax. This implies that a company’s income is taxed on an income earned in Singapore or received from outside the country despite the company’s tax residence status in Singapore. In Singapore a company is considered to be a tax residence if the management and control of the business is exercised in Singapore hence before establishing the operation is very important that KW dt Ltd take in mind this concept on whether the management of the business will be in Singapore or it will be done from the parent company in Australia (Charles, pp.158-170, 2007). Double Taxation is another issue which affects many Australian companies operating internationally, hence is very much important that KW dt Ltd puts this issue in mind and how it can successful curb it by taking required measures. Withholding of Tax is an accounting issue with should be clearly given heavy consideration since it has a heavy impact on a firm’s financial statements such as Profit and Loss statements, balance sheets among others. Withholding of Tax in Singapore is only permitted to foreign registered companies in which the company is required by law to withhold a certain percentage of the payment that can be remitted to the parent company in the domestic country (Charles, pp.158-170, 2007). In Australia companies are under the law are entitled to Corporate Tax in which the tax is calculated at a flat rate of 30%..In Australia is a company is considered to be a resident company if it has its management there which implies that KW dt Ltd digital company will be taxed in Australia at a flat rate of 30%.Since the business is planning to set up a non resident company in Singapore then, it implies that only profits remitted to KW dt Ltd company from Singapore will be taxed. Since the two businesses are operating in different destinations with different currencies KW dt Ltd may encounter problems translating the financial statements into one concrete statement. Translating of the financial statements recorded in Singaporean dollar currency into Australian dollar currency may lead to accounting errors which in turn may affect the financial statements of KW dt Ltd hence it is necessary that proper measures be put in place to avoid occurrence of such errors. Additionally, it is very much important that KW dt Ltd takes into considerations the fluctuations in foreign exchange rates since it is evident that due to various economic conditions the exchange rates between Australian Dollar and Singaporean Dollar may fluctuate considerably affecting the transactions recorded in the accounting books (Ron, Graeme, & Cecilia, pp.13-28, 2007). The last Accounting an issue is related to Financial Reporting which should be heavily considered by KW dt Ltd. The company Act in Singapore requires that a company established in Singapore should prepare consolidated financial statements unless if the Company meets the criteria established FRS 27(Deloitte & Touch Singapore, pp.23-250, 2008). Under this Act the company is supposed to prepare consolidated financial statements consisting of balance sheet, income statements together with explanatory notes explaining each of the firm’s transaction. With the implementation of Accounting Standards regulations it implies that KW dt Ltd will be required to prepare a complete set of financial statements comprising of balance sheet, income statement, statement of changes in equity, cash flow statements and additional explanatory notes (Ron, Graeme, & Cecilia, pp.13-28, 2007). This issue affects many Australian companies operating internationally as they are supposed to consolidate the financial statements to reflect the companies operations to both the stakeholders, auditors and directors of the companies in both countries and sometimes it may lead to some misunderstanding incase of any discrepancies. Conclusion It is necessary that KW dt Ltd takes into consideration both accounting and business issue which may affect its operations in Singapore before establishing the business. This is because by analyzing these issues and putting in place proper measures to handle them, KW dt Ltd will have a competitive edge over the other digital companies operating in Singapore and it will expand its business network in terms of expected profits. References Belverd, E., N & Marian, P (2007).Financial Accounting, 9th ed.Publisher: Cengage Learning, pp.133-156 Craig, D (2007).Australian Financial Accounting, 5th ed.Publisher:McGraw-Hill Australia, pp.34-56 Charles, K (2007).International accounting and reporting issues. Publisher: United Nations Publications, pp.158-170 Deloitte & Touch Singapore (2008).GAAP: financial reporting standards in Singapore. Publisher: CCH Asia Pte Limited, pp.238-250. Ramachandran, K (2007).Financial Accounting For Management,2nd ed.Publisher :Tata McGraw-Hill, pp.78-90 Ron, D., Graeme, W., & Cecilia, L (2007).Corporate Accounting in Australia, 4th Publisher: UNSW Press, pp.13-28. Shahrokh, M., S (2009).International Accounting: A User Perspective, 3rd ed.Publisher:CCH, pp.7-19 Timothy, J., S (2006). Advances in international accounting, Volume 19.Publisher: Elsevier, pp50-60 Yasmin, Y (2007).Managing Financial Risk for Multinational Companies in South East AsiA. 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