International Accounting And Business: A Case Study Of Fiat Chrysler Automobiles N.V

Background of Fiat Chrysler Automobiles N.V

The current assessment is based on the analysis of Fiat Chrysler Automobiles N.V which is a UK based company has used different accounting system as compared to the ABC Corp. which uses the US GAAP system.  The problem which the Board of Directors and the CEO of the company face in decision making of acquiring Fiat Chrysler Automobiles N.V is that the company uses different account standards and reporting standard which may lead to a problem in knowing there financial position in accordance to the US GAAP hence the hierarchy has asked for a further evaluation of the financial statement to point to the differences and found whether there will be any problems on effects on the company’s financial position on the application of US GAAP to make an authentic decision.

Fiat Chrysler Automobiles N.V is an Italian American multinational company headquartered in London, England. The company is considered as the 8th largest automobile maker company in the world. The company are two groups of a firm which eventually merged in late 2014 one of the reign Fiat and the other one being Chrysler. Both of the company merge and provide and range of diverse types of cars. It can be said that in the current year the revenue of the company was valued at 133.2 Billion US dollars and Net Income 4.215 billion US Dollars. The company is a big company in both manufacturing and financial size. It is to be said that through the use of effective strategic decisions and financial support the company has financial strengths and financial stability which has helped the company to effectively operate in the country. Now the company is multinational company has also to use international standards of reporting in order to report their financial data. The company also follows UK standards of accounting reports so that they abide the accounting set in the domestic as well in the international basis.

Cultures have a lot of effect on the accounting and reporting practices in different countries in the company. It can be said that culture tends to define the approach of the accountant of accounting bodies to define standard and account reporting procedure which is to be reported to the stakeholder. US culture for work is supported through high professionalism and accuracy of work hence the culture is drive through the accuracy of an operation performed. Hence in this country accounts professional tends to use such approach and culture in order of providing accurate accounting records in their reports.  Accuracy is the major parameter which is derived to the accounting operation from the US work culture and tends to have a significant impact on the accounting accuracy. In the UK the work culture accounting holds prominent place accounting is a responsible act of creating the financial stress-free situation in work. Quality of accounting disclosure is considered to be a very significant factor which considered under the Institute of Chartered Accountants in England and Wales the accountant tend to follow a work culture to deliver quality and accurate accounting disclosures which are used in accounting procedure of the company. It can be said that in both the work culture of accountancy within the country has helped the accountant and accounting procedure to be significant accurate and reliable to the stakeholder who is using the annual reports of the company.  The accountants in the UK are focused on the creation of Universal formats of report hence the use of IFRS is very prominent whereas Accountants in America use US GAAP as they feel that there remarkable limitation in the International Financial Reporting Standards.  

Overview of the culture and differences in cultures between the United Kingdom and the United States

In the UK GAAP is used as a major framework which is used by the company’s within the country to create their accounting records and annual financial reports. The company is a multinational firm has to also follow IFRS which International Financial reporting standard which a framework under which financial report created by the company is internationally accepted. Now US GAAP and IFRS are two different reporting system which is there to be used by a firm exeperixing their operation in the United States are abide the US GAAP reporting principle where the firm in the UK follow GAAP and IFRS to operate and report their financials.  One of the major differences which can be noticed in the process is the basis on which these two frameworks are; also GAAP is based on a set of rules of accounting whereas IFRS is based on the set of accounting principle which may have differed on accounting disclosure which is made by companies using different set of frameworks. IFRS is limited to the net income within an income statement only where in US GAAP framework segregation of income is to done in a significant manner which states that in some cases information related to income may be limited which can affect the overall quality of the report.  In terms of asset valuation IFRS does not allow LIFO method of valuation hence this can differ from the calculation done under the US GAAP method. It is to be mentioned in inventory valuation only LIFO is considered whereas FIFO is considered to be a void method wherein US GAAP there can be an effect on the calculation as the company under this system can use either LIFO or FIFO. Through it can be said that as Fiat Chrysler Automobiles N.V is using IFRS as major reporting standard the information gained from its annual report may not comply to calculations made under US GAAP hence the values might be different and values can either be overrated or underrated based on which ABC corp. should take the decision on the following point.

In this section, a detailed research is to be conducted on the U.S.GAAP standards during the current financial year in accordance with the Fiat Chrysler Automobiles N.V the standards are to be identified and explained in order to observe the changes and applicability of the standards of the regulation in the operations of the organisation.  The principles and regulations that have been identified and observed are discussed as follows

1. Principle of regularity

According to the principle provided by the U.S.GAAP, it can be said that the Fiat Chrysler Automobiles N.V in order to precede its operations and marketing activities must obtain the principle of regularity. The principle provides regulations that require submission and adhered of accounting information of the company operating in the market. In this context, it can be said that the Fiat Chrysler Automobiles N.V has been operating with the principle of regularity as per provided by the US GAAP during the year.

Principle of consistency

Significant differences in the accounting standards between Fiat Chrysler Automobiles N.V reporting standards and the US GAAP

According to the principle provided by the U.S.GAAP, it can be said that the Fiat Chrysler Automobiles N.V in order to precede its operations and marketing activities must obtain the principle of consistency. The principle provides regulations that require a complete and detailed explanation of the accounting methods and changes that were done in the accounts of the company during the year. Not only that the company needs to be clear with the reasons that caused the changes in the company accounts accounting information of the company operating in the market. In this context, it can be said that the Fiat Chrysler Automobiles N.V has been operating with the principle of consistency as per provided by the US GAAP during the year.

Ratio Calculations
		Ford Motor Company	Fiat Chrysler Automobiles N.V
Ratio	Formula	2015	2016	2017	2015	2016	2017
Quick Ratio	Current Assets – Inventory /Current Liabilities	0.87	0.82	1.21	0.92	0.92	0.92
Current Assets		£         67,452.00	£         69,159.00	£         78,584.00	£         65,552.00	£         72,107.20	£         79,317.92
Inventory		£         41,523.00	£         44,378.00	£         42,822.00	£         39,201.00	£         43,121.10	£         47,433.21
Current Liabilities		£         29,875.00	£         30,147.00	£         29,607.00	£         28,547.00	£         31,401.70	£         34,541.87
Current Ratio	Current Assets /Current Liabilities	2.257807531	2.29405911	2.654237174	2.296283322	2.296283322	2.296283322
Current Assets		£         67,452.00	£         69,159.00	£         78,584.00	£         65,552.00	£         72,107.20	£         79,317.92
Current Liabilities		£         29,875.00	£         30,147.00	£         29,607.00	£         28,547.00	£         31,401.70	£         34,541.87
Inventory turnover ratio	Cost of Goods Sold / Average Inventory	1.360476056	1.33624769	1.50705245	1.16765109	1.16765109	1.16765109
Cost of Goods Sold		£         57,842.00	£         59,300.00	£         64,535.00	£         46,852.00	£         51,537.20	£         56,690.92
Average Inventory		£         42,516.00	£         44,378.00	£         42,822.00	£         40,125.00	£         44,137.50	£         48,551.25
Fixed asset Turnover	Sales/  Average Net Fixed Assets	3.837561681	3.805666927	4.585076499	3.842336208	3.842336208	3.842336208
Sales		£ 1,53,986.00	£ 1,55,667.00	£ 1,68,121.00	£ 1,52,364.00	£ 1,67,600.40	£ 1,84,360.44
Average Net Fixed Assets		£         40,126.00	£         40,904.00	£         36,667.00	£         39,654.00	£         43,619.40	£         47,981.34
Total Asset Turnover	Sales/Average Total Assets	1.509296741	1.414344512	1.458737885	1.626881927	1.626881927	1.626881927
Sales		£ 1,53,986.00	£ 1,55,667.00	£ 1,68,121.00	£ 1,52,364.00	£ 1,67,600.40	£ 1,84,360.44
Average Total Assets		£ 1,02,025.00	£ 1,10,063.00	£ 1,15,251.00	£         93,654.00	£ 1,03,019.40	£ 1,13,321.34
Debt Ratio	Total Debt/   Total Assets	0.045390836	0.045637499	0.042602667	0.473711747	0.473711747	0.473711747
Total Debt		£            4,631.00	£            5,023.00	£            4,910.00	£         44,365.00	£         48,801.50	£         53,681.65
Total Assets		£ 1,02,025.00	£ 1,10,063.00	£ 1,15,251.00	£         93,654.00	£ 1,03,019.40	£ 1,13,321.34
Debt – Equity Ratio	Long Term Debt/  Total Equity	0.064583306	0.062853496	0.057330344	0.062155484	0.062155484	0.062155484
Long-Term Debt		£            4,931.00	£            5,023.00	£            4,910.00	£            4,578.00	£            5,035.80	£            5,539.38
Total Equity		£         76,351.00	£         79,916.00	£         85,644.00	£         73,654.00	£         81,019.40	£         89,121.34
Interest Cover	EBIT /Interest Charge	20.57931034	21.96819788	28.10820896	30.59509202	30.59509202	30.59509202
EBIT		£            5,968.00	£            6,217.00	£            7,533.00	£            4,987.00	£            6,483.10	£            8,428.03
Interest Charge		£      290.00	£      283.00	£      268.00	£      163.00	£      211.90	£      275.47
Gross Profit Margin	Sales – Cost of Goods Sold/ Sales	0.612088112	0.619547435	0.616139566	0.692499541	0.692499541	0.692499541
Sales – Cost of Goods Sold		£         94,253.00	£         96,567.00	£ 1,03,586.00	£ 1,05,512.00	£ 1,16,063.20	£ 1,27,669.52
Sales		£ 1,53,986.00	£ 1,55,867.00	£ 1,68,121.00	£ 1,52,364.00	£ 1,67,600.40	£ 1,84,360.44
Net Profit Margin	Net Income /   Sales	0.016650864	0.017226225	0.029681004	0.015522039	0.015522039	0.015522039
Net Income		£            2,564.00	£            2,685.00	£            4,990.00	£            2,365.00	£            2,601.50	£            2,861.65
Sales		£ 1,53,986.00	£ 1,55,867.00	£ 1,68,121.00	£ 1,52,364.00	£ 1,67,600.40	£ 1,84,360.44
Return on assets	Net income + Interest expenses/ Average Total Assets	0.016650864	0.024395119	0.043296804	0.025252525	0.025252525	0.025252525
Net income + Interest expenses		£            2,564.00	£            2,685.00	£            4,990.00	£            2,365.00	£            2,601.50	£            2,861.65
Average Total Assets		£ 1,53,986.00	£ 1,10,063.00	£ 1,15,251.00	£         93,654.00	£ 1,03,019.40	£ 1,13,321.34
Return on Equity	Net Income/  Average Common Equity	0.854666667	0.895	1.663333333	0.801694915	0.864285714	0.917195513
Net Income		£            2,564.00	£            2,685.00	£            4,990.00	£            2,365.00	£            2,601.50	£            2,861.65
Average Common Equity		£            3,000.00	£            3,000.00	£            3,000.00	£            2,950.00	£            3,010.00	£            3,120.00

Table 1: Ratio Analysis

(Source: self-developed)

Ratio analysis is one of the most significant ways through which the analysis of the financial position of a place can be determined. It is important to consider that through the bits of the help of ratio analysis the comparison of one firm can be done to another firm easily and very financial aspect of the firm can gain effectively.  A ratio is of different types and shows the profitability of the firm, financial stability of the firm and the capital structure within the firm through the knowledge of this the company is able to make a decision on every aspect of company’s financial components. It is to be mentioned that through ratio analysis of the subject company and its competitor for it has become significant that the management will be able to decide whether the company is doing good or bad based on the market performance of the firm in comparison to a competitor in the market. Now in the context of the above ratio calculation, it can be stated that Fiat Chrysler NV has been doing financially well and has grown in respect to the Ford in the recent days.  The profitability of the company has increased in the recent year return on assets, net profit margin and gross margin of the company has increased in recent years. It is to be mentioned that the company has become more profitable to the one in comparison which shows that the profitability has grown in the recent days. It is to be mention that the capital structure of the firm has also grown to be stable which meant that the debt capital and equity capital of the firm has become evident in last few years which is a positive sign for the company.  The share related and investment related ration of the company has also grown in recent years. It is to mention that overall it can be said that through the development of the company in the recovering the financial size and efficiency of the firm has also increased in the recent days. Hence the company is grown and acquiring such company will be beneficial for the company.

Conclusion

Concluding in the light of above context it can be said that the subjected company which is Fiat Chrysler Automobiles N.V has been using IFRS and GAAP for their reporting of annual financial reports. Now it has predominantly discussed that there are differences between the two system and that basic principles and rules in both the IFRS and US GAAP are different which is why inventory and asset valuations are different to that of US GAAP. Hence ABC corp. should look to get financial analyst in order to analyze whether the company is a formidable option to invest in. Although through the comparison of the company to its Competitors financially and it was seen that it has grown and its financial growth is a positive sign for the company as it can be profitable for the company to make an investment in a company which growing financially.

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