Week 4 -- Lecture notes - ACCG835 International Accounting...

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ACCG835 International Accounting Week 4 Management Control: Performance evaluation and transfer pricing
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Performance Evaluation Definition Periodic review of operations to ensure objectives are being met. Report of success or failure. Usually part of financial/management control system . Allows judgement of; Profitability Allocation of Resources Identification of non-performance
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Performance Evaluation Consistency (for foreign operations) Foreign operations frequently deal with; Exchange rate fluctuations Inflation Transfer pricing Other risks Ignoring these can result in measurement distortion . Conflicts can arise because evaluation system does not fit nature of foreign operations (more on this later). Short–run versus long–run orientation .
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Performance Evaluation Unit v Managerial performance Need to make distinction between unit and manager performance . Naïve to evaluate foreign subsidiary performance without considering/adjusting for uncontrollable costs. An example – see page 82 of the text. Also see Controllable and noncontrollable components in Exhibit 10-11, page 371. Performance of foreign operations can be affected by; Local management HQ management Host country government Parent country government Exchange rate volatility
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Performance Evaluation Performance criteria Need more than single criteria. Single criteria unlikely to capture all factors of interest regarding performance. Financial vs Non-Financial Measures (Horngren). Balanced scorecard
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Balanced Scorecard The balanced scorecard is a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals. It was originated by Robert Kaplan (Harvard Business School) and David Norton as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to give managers and executives a more 'balanced' view of organizational performance.
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Performance Evaluation Financial Non-Financial Short-term Long-term Narrow Broad Objective Subjective Linked to financial accounting cycle Not linked to financial accounting cycle Short term (< 1 year) Short or long (no constraints) Limited to $ items – ignore intangibles - narrow Non – monetary terms – infinite variety – possible to measure intangibles Aggregated ($ can be added) – not traceable to individuals – not actionable Not aggregated – measures are unique – traceable to individuals/effort – actionable (cause/effect) Difficult to tailor to individual actions Easier to tailor to individual actions
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Performance Evaluation Financial Measures of Performance (Kaplan).
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  • Fall '15
  • gross margin, transfer price

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