Why is it important for an international firm to develop and maintain an effective accounting system? What accounting issues are faced by firms with subsidiaries in multiple countries? How can these problems be addressed?

What will be an ideal response?

It is extremely important for international firms to develop and maintain effective accounting systems because these systems allow managers to fully monitor and understand where the firm's revenues are coming from in every market in which the firm operates, track and evaluate all of the firm's costs and expenses, and see how its parts contribute to overall profitability. Problems can arise when the accounting standards or procedures of the countries in which a firm operates are incompatible with each other, as is frequently the case. Each subsidiary must maintain its accounting records in accordance with local procedures and denominate its accounts in the local currency to satisfy local government regulations and meet the needs of local managers. Yet to meet the needs of investors, regulators, and tax collectors in the parent's home country, the parent needs the local accounting records of each subsidiary translated into the parent's currency using accounting procedures dictated by the parent's home country. The parent further must decide whether it will evaluate the performance of its subsidiaries and the subsidiaries' managers using the local currency, the parent's home country currency, or some combination of the two.