The West Elton Foreign Investment - Essay Example

A report on the accounting and ethical issues that may face West Elton company in Mexico

Executive summary

The study concentrates on accounting and ethical issues that are likely to face multinational companies keen on investing in the Mexican market. For writing down the report, the study has narrowed down to how the two identified issues affect West Elton Company, a successful private company incorporated in the UK in its quest to expand its operations in Mexico. After posting consistent profits in the UK, the company intends to expand its influence in one of the MINT economies (Mexico, Indonesia, Nigeria and Turkey). West Elton deals in the production of non-stick coverings for consumer goods as well as industrial goods. Consequently, it offers know-how in the method of practical support to customers.

The report, therefore, includes an overview of the accounting and ethical matters facing West Elton Company as it commences functioning in Mexico. Additionally, the report has incorporated some recommendations geared to help the company resolve such issues and incorporate its operations successfully in the Mexican market.

Introduction

MINT economies and Mexico, in particular, have emerged to offer great economic opportunities to investors and business when compared to other rival trading blocks. However, it is of paramount importance for any investor or business organization keen on exploiting such new markets like Mexico to conduct a lot of research regarding the market environment. The essence of conducting such research is to gain important understanding and knowledge of the market landscape of Mexico since it is a crucial part of the venture. The Mexican economy is currently reviewed as being among the top fifteen largest market economies in the world and makes it to the top ten concerning its purchasing power. Additionally, by the year 2050, PricewaterhouseCoopers report has mooted the Mexican economy to make it to the top seven biggest economies in the world just behind the United States Economy and the Brazilian economy. The biggest segment of the Mexican market landscape that has been affected by such meteoric rise and projections of the Mexican economy is their trade policies. Therefore, an international firm of the standing of West Elton, a private company incorporated in the UK, must equip themselves with a good grasp of the legal and accounting framework operating in Mexico to successful trade in the country.

Accounting issue

The importance of having well-audited accounting records is because they are presented to the federal Mexican taxation authority for review and used by the authority to calculate the tax dues to be paid by the company. The vital accounting records that need to be filed with the authority are a balance statement and statement of earnings, statement of changes in shareholders’ equity, in addition to, the statement of variations in financial position (Prather-Kinsey, 2016). The mentioned reports should comprise records that elucidate the effects of inflation in the financial statements. Additionally, a yearly report recounting the primary accounting policies and procedures is required to be filed with the authority (Prather-Kinsey, 2016).

The Mexican Congress in October 2013 passed ratified several tax code reforms, which took effect in 2014. The reforms provide for electronic submission of accounting recording through the electronic media. This requirement was occasioned by the increasing number of taxpayers which put a toll on the Tax Administration Service (SAT) since they did not have the required number of personnel to audit the taxpayers across the country. Additionally, the increasing complaints by the taxpayers in the country due to the long and protracted delays which were there with the manual system of filing tax returns due to intervening statutory stages occasioned the need to have the electronic system in place to stem such delays. Therefore, article 28 of the Federal Tax Code makes provision for the electronic submission of the identified accounting records. In submitting the accounting records, the code stipulates the order which should be followed in sending the monthly trial balances. Additionally, to comply with the regulations, tax payers are obligated to send their trial balances and other accounting records following the grouping code given by the Tax Administration Service that provides for the interpretation of the data (Pagell and Halperin, 2015).

Ethical issue

Corporate Social Responsibility activities and practice range from established practices on corporate governance obligations for accountability and openness to the shareholders and the public at large to philanthropic ventures in Mexico. Many business analysts in the country assert that Corporate Social Responsibility is a developing idea in Mexico having been brought into the country by United States Companies, and therefore a majority of the native companies portray Corporate Social Responsibility concepts that are very much American. However, contrary to this assertion, Corporate Social Responsibility has been in Mexico even before American Companies ventured into the country. Additionally, Mexican companies have even started to incorporate global CSR guidelines, for instance the ISO 14000 guidelines on environmental endorsement and corporate social journalism (Muller, 2016).

The high environmental and social challenges that Mexico faces led to most of the big Mexican companies getting involved in sustained corporate social responsibility activities. Additionally, increasing pressure from the public for multinational corporations to become more socially involved forced the companies to restructure themselves and adopt acceptable corporate social responsibility standards. However, it is important to note that the Mexican population holds a certain perception of corporate social responsibility to hold a certain degree of philanthropy. Therefore, corporate social responsibility activities in Mexico range from lessening poverty levels, promoting better education and healthcare services, protection of the environment and engaging in general philanthropic activities. Additionally, the Mexican press offers consistent coverage of Corporate Social Responsibility with even an exclusive magazine dedicated to covering Corporate Social Responsibility topics solely (Muller, 2016).

In 1988, a Mexican business entrepreneur known as Manuel Arango established an organization referred to as ‘the Mexican Centre for philanthropy (cemefi)’. Even though it is the premier corporate social responsibility institution in the country, the motivation behind the establishment of Cemefi was to arouse companies to additionally engage on other important issues like the environment apart from philanthropy. Since its incorporation, the organization has metamorphosed to engage in activities of helping companies in Mexico carry out their corporate social responsibility obligations. As at the present time, Cemefi stands as the central organization in participating in corporate social responsibility in the country (Muller, 2016).

Looking at the statistics of companies engaged in active corporate social responsibility activities indicate that just about 10% of the N100 corporations in the country include an annual report detailing their corporate social responsibility involvements. Additionally, even these corporations that file such reports, it is just 5% of them that include outside sources to ascertain the truthfulness of their reports. The biggest challenge grappling the concept of corporate social responsibility in the country is the misconception that corporate social responsibility only covers philanthropic activities. This is in spite the fact that environments degradation and wastage of the ecosystem turns out to be a big national challenge in Mexico. This has led to organizations carrying out business in the country grapple with the problem of putting matters concerning the environment as making up the list of viable economic consideration despite Mexico having the fourth largest biodiversity. The reason for this is because the ecosystem of Mexico is among the leading nations whose ecosystems face the eminent danger of annihilation (Muller, 2016).

Among the contributing factors for this unfortunate state of events is the declining of the state control regarding the economy of the country as was the case prior to the 20th-century practice. The 21st century has seen private companies gain the upper hand in dictating the trajectory of the economy in Mexico as a result of denationalization of companies that were owned by the state. Additionally, demeaning influence of the country’s regulatory regime as a consequence of the rampart corruption in the government led to the increased acceptance of the local corporations by the society (Muller and Kolk, 2012).

Recommendations

Due to the introduction of a raft of changes in the Federal Tax Code, the company should consider hiring professional accountants who have had a grip of the requirements of the changes in the IFAC codes in Mexico. Additionally, the new requirements for the filing of electronic accounting records mean that any such professional accountant hired by the company must have a good understanding of the requirements of the system to comply with the necessary directives. Additionally, due to the growing number of merging of IFAC codes in many countries, the company must be possessed of solid understanding of IFAC codes. At the same time, the company should ensure to comply with the specific accounting regulations of Mexico in coming up with its accounting records. The fundamental importance of the IFAC codes is to enable companies comply with various accounting principles in their projections. Additionally, the company should consider having an internal audit department to help the accountants to keep in line with all the required accounting rules (Prather-Kinsey, 2016).

The company should be prepared and ready to engage in corporate social responsibility activities in the country. Even though there are no tight regulatory mechanisms in place to ensure that companies observe their corporate social responsibilities in the country, it is very prudent that the company engages in CSR. The advantage of engaging in CSR is that the image of the company before the eyes of the public will be elevated leading to public confidence in the brand of the company. Additionally, while engaging in CSR the company should realize that Corporate Social Responsibility means much more that engaging in philanthropic activities to actually engaging in acts of sustainable development such as advocating against the release of toxic substances to the ecosystem (Muller, 2016).

Conclusion

Venturing into a new market always presents a myriad of challenges to any business organization in spite of how big or well organized the organization is. Therefore, this makes it very essential for any business organization planning to venture into such markets conduct sufficient research on all the prospective challenges that are likely to be encountered in such ventures and plan on how to counter such challenges before undertaking any business decision.