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Germany - Petrotec AG
China - PetroChina Company Limited Selected Countries and Companies The companies prepared their annual reports under different versions of IFRS and different accounting standards, such as different assets useful life, depreciation method and residual value. The reports will then be incomparable. Level of Compliance with IFRS Strongly recommended not to invest in Germany/China Recommendations International Financial Statement Analysis Financial Reporting Analysis Risks such as exchange rate fluctuations, accounting differences, market volatility, environment regulations, business practices and non-renewable natural scarce resources will all affect the future profitability of each company and should be taken into account when considering FDI. Prospective Analysis Financial Analysis Development Factors Hofstede's Cultural Dimensions Gray's Accounting Values Due to impacts of development factors and cultural characteristics, the convergence of IFRS has not been completely and successfully adopted by China and Germany. Both Hofstede's and Gray's models accurately predict the cultural dimensions, accounting practices and principles in those three countries. Relevance of Hofstede's and Gray's in 2012 Key Limitations Currency Risk Corruption in Australia (14) and Germany (17) are not overly relevant in this issue, however China is. The Opacity Index of China is 42, a relatively high score out of 100. Financial gain might be manipulated, due to corruption, report preparation and low level of transparency (seen in PetroChina's annual report). Corruption Conclusion Oil and Gas Industry Can determine a country's cultural dimensions and accounting values Gray's framework is an expansion of Hofstede's model, analysing culture differences to predict a country's accounting system. Source of finance are the owners of the companies; legal systems tend to set legislation to protect the majority of owners, which lead to different taxation policies among countries. Australia Australia Development factors especially source of finance from external shareholders, determined a competitive, short-term, highly aggressive profit-based environment within the company, this can also assure shareholders earn high dividends while directors earn high bonuses. Germany China Government has tight control in all aspects of the companies' operations to ensure accountability of their and bank's money. Therefore, the government maintains control over accountants, auditors and regulators by statutory controls on legislation Directors of Bluescope Steel Ltd. FDI Recommendation Presentation
to Under corporate culture, Germany's PDI should be low due to the government still has high level of control in accounting systems and accountants, although companies start seeking funds from other capital markets. PDI - Power Distance
IDV - Individualism MAS - Masculinity
UAI -Uncertainty Avoidance Low PDI = less statue
Independent accounting regulators
Enable to have two sets of accounts attract funds
Source of finance from outside shareholders Australia Code law system
High PDI and political pressure face by professions
Tax is paid on profit and only allowed to have one set of accounts
Major source of finance is companies' dependents Germany Code law system
Heavy interference by Government in accounting systems
Tax is paid on profit and is the main purpose of accounting
Culturally to have high degree of secrecy, concealment and hiding sensitive information China Transparency Professionalism Flexibility Optimism Statutory Control Uniformity Secrecy Conservatism Statutory Control Uniformity Secrecy Conservatism All the three companies use different currencies when preparing their annual reports. Due to fluctuation of exchange rate, a reliable report should include information about the current market information. To overcome this, convert all reports' currencies into one currency using same date of exchange rate. This can be overcome by converting all financial statements into the same accounting standard or strict adherence to IFRS with universal adoption. Opacity Index is a measure of five components - Corruption, Legal system inadequacies, Economic enforcement policies, Accounting standards & corporate and Regulation Country's scoring high in the index will have higher level of Opacity Hofstede's and Gray's model are still relevant in 2012 Oil and Gas Industry Business Strategy Analysis Currency differences make a comparison via reports impossible. IFRS HGB CAS Reliable Government involvement, may manipulate figures & withhold information Invest in Australian companies with high disclosure, good corporate governance and transparency in their reporting These are preliminary recommendations and more information and research should be undertaken prior to making a FDI decision. Cultural dimensions and accounting principles (China and Germany) do not offer a stable and transparent environment
Corruption in China could lead to negative impact on BSSL
PetroTec AG exhibits limited disclosure and seems not to be catering to the international market
Although PetroChina like Woodside has lengthy report, under China's strict privacy and secrecy laws, information disclosed in the report is limited. Petrotec's report has not completely disclosed all relevant information.
These reports ended at December 2011, they have been prepared by using different accounting standards making reports unreliable and incomparable.
Woodside and PetroChina have included independent audit reports, however PetroTec AG did not include a translated audit report limiting its effectiveness in communication to foreign investors. High demand for resources
Increased global competition
Increased regulatory pressure Woodside Negative media within Australia
Operates globally - must be wary of business operations in unstable environments e.g. Libya
Source of finance - External shareholders = transparency and rigorous corporate governance structures PetroChina Central to China's energy security
Strong growth rate
Expanding into developed markets
Source of finance- Government owned corporation- must be wary of government intervention
High regulatory and taxation pressure within the industry in China PetroTec AG Rising market for alternative energy solutions
EU committed to environmental regulation and R&D in alternative energy industries
Regulatory discrepancies across EU restrict expansion
Source of finance - large corporations - must be wary of supplier/customer emphasis on reporting Opacity & Corruption China ranks poorly in the corruption perceptions index
Investors should be wary of conducting business in China
Potential to become involved in corrupt business operations
Australia and Germany rank well and this is not a key issue It is not easy to overcome, however, strong market mechanisms with strong and stable government would help improve corruption Thank You! I Quick Ratio Shows firm’s ability to pay all current liabilities should they become due immediately. A quick ratio below 1 indicates that a firm could not pay back its current liabilities. PetroChina is the strongest in this category (1.07) whereas PetroTec AG comes in third rank (0.21). The higher the quick ratio, the better the overall financial position of the company. Current Ratio Indicates the strength of a firm’s current financial position. The higher the ratio suggests businesses have sufficient liquidity to maintain normal business operations. PetroTec AG indicates the most strength in this particular ratio with Woodside placing third. This shows that PetroTec AG stands at a stronger financial position given the information provided. Debt Ratio Shows the proportion of company assets which have been financed using debt. If the ratio = 1 = all assets have been financed with debt.
More importantly, this ratio shows any potential debt-load related risks in the short term. Woodside has used debt to finance 42% of its assets whereas PetroTec AG has used 56%. This indicates that PetroTec AG has a higher debt-load, linking to higher instability and short-term risk. More research is needed by trained professionals, particularly to overcome the financial reporting discrepancies encountered