International Accounting: The Importance Of Financial Risk Management

4096 Words 17 Pages
Register to read the introduction… Financial risk management aims to minimise the risk of loss from unexpected changes in the price of currencies, interest rates, commodities, and equities. In the context of international accounting, financial risk management also contains an element of political, legal and “culture” risk. These latter types of risk comprise exposure to uncertainty in the outcomes of business transactions and asset transfers that comes with most international business operations. Risk management, because of its predominantly financial nature, is generally the domain of a company’s accountants. Accountants are closely involved in the analysis and evaluation of the financial effects of currency movements and exchange rates, tax regimes and business laws, as well as risks of hostile takeovers, expropriation and local economic downturns, which differ in every country from Singapore and Malaysia to Japan, the United States and beyond. Yet intelligent risk management requires more than a grasp of numbers and the ability to calculate acceptable odds. For a multinational corporation, or even a domestic company involved in exports or other supplier relationships with extranational parties, “firm-wide risk [can] not be represented by market and credit functions alone” (Hoffman 2000). A risk management officer such as the CFO must combine qualitative and quantitative risk management techniques to arrive at a workable strategy for her company. She must also be able to asses the effectiveness, efficacy, and applicability of each individual tool. Intelligent and effective risk management is necessary to minimise against perceived as well as actual risks—in fact, the perceived risks may harm the company more than actual risks. When investors or shareholders, as well as …show more content…
On a theoretical level, a new model for risk management strategy in the international accounting field is to be suggested. Existing models were considered in Chapter 2: Literature Review, and their strengths and weaknesses identified. The new model towards which would be working was based on two assumptions. The first assumption was that the effectiveness and efficacy of both individual risk management tools and overall company risk mitigation strategies ultimately was the result of the skills and capabilities of its risk mitigation officers—usually, CFOs or other senior accounting professionals. The second assumption was that the specialist in international accounting needs to familiarise herself with local conditions, regulations and policies that impact each of these areas of finance—in other words, that she needs to be conversant with more than numbers. On a practical level, individuals active in this specialised area of international accounting are provided with an accessible discussion of the tools, techniques, approaches, and systems that should enable them to be successful in mitigating risk for international businesses. They are the key individuals to companies’ ultimate success and financial performance; hence, it is the goal of this study to marry practice and theory. To that end, companies’ actual actions and risk management results were considered of more importance than their policies and

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