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Ford Motors Corporation’s Conflicting Accounting Principle

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Ford Motors Corporation’s Conflicting Accounting Principle

Introduction

Ford Motor Company is a multinational corporation that is based in Michigan, U.S. It mainly deals in different kinds of automobiles such as Ford and Lincoln. Additionally, it owns a portion of the stake in Mazda of Japan and Aston Martin in the U.K. The company has a number of departments that ensure that its activities are run efficiently. This further ensures the activities are coordinated towards the achievement of its main goal.

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Departments of Ford Motors Company

Human Resource Department

This department deals with the recruitment and welfare of employees within the company. The core function of this department is to ensure that the workforce employed in the company measures up to the required standards such as having current skills that match with the current technology of manufacturing automobiles. The department has made some steps in which it continues to offer training to the employees in an effort to address the gap that always exists between the skills of the employees and current technology. This has enabled the company to be in a position to produce new models of automobiles at the market that has further enhanced the profit of this corporation. Despite the progress this department has made, it has faced a number of setbacks. For instance, the decrease of this company’s share in the market has forced this company to lay off several workers (Britton & Waterston, 2009).

The department has also failed to manage the contribution of each employee to the company’s performance. As far as this is concerned, the company can make many improvements such as maintaining an accurate and regular record of each employee’s progress. Keeping such a track would help the company foresee the efforts that need to be put in place to enhance employees’ performance. The company should also cut down on the number of employees given its shrinking market share. This would help to cut down costs while boosting profit at the same time.

Manufacturing and Product Development Department

In order to compete well with other competitors in the industry such as General Motors, the company has enhanced its productivity by coming up with more effective and efficient brands in the market. Manufacturing cars that are flexible in terms of consuming a variety of fuels with different ethanol percentages have been a major step. The company has also been able to manufacture cars that use compressed natural gas (Kotabe & Helsen, 2008).

The additional strategy of coming up with electric cars has been a major contribution by this department. This is in line with the government’s efforts to reduce environmental pollution. Although these steps could improve the company’s performance, other challenges such as sourcing of its materials for its manufacturing processes affect the department. The company has further been rated as the seventh-worst company in polluting environment. This is due to the use of manganese and other chemicals in its manufacturing processes. In an effort to reduce environmental pollution, the company should also think of coming up with fuel-efficient models. This would ensure less consumption of fuel and thus less release of smog on the environment.

Marketing Department

This department has recently focused on the “Go Green” Dealership Sustainability Program in an attempt to address the environmental pollution issue. The government had emphasized the issue of pulling down the rates of environmental pollution using various measures. In an effort to measure up to this level, the company came up with new models that have little effect on the environment. This emphasis on the consumer is to increase consumer and government confidence in collaboration efforts towards keeping a clean environment for everyone. Indeed, the motive behind this strategy is to increase sales in the market. In collaboration with the product, development department, the company has tried to match its model with the taste of consumers and the public. The marketing strategy for this has not been up to the best standard as the company had been forced to shut down some of its subsidiaries such as those in the U.K., which were sold to Tata Motors of India in 2008. This gives an impression of great tough competition from other companies. In order to deal with this problem, the company should emulate the marketing strategies employed by other companies. It should also conduct international markets through several modes of advertisements such as the internet (Lucey, 2003).

Communication Department

This department has been of major importance towards coordinating the activities of the firm. Majorly, communication between the several functions aid in streamlining the efforts of every department towards the set target of the company. Communication ensures that links between the manufactured units exist. However, it failed to warn the human resource department against the shrinking market that led to massive lay-off of employees. This even led to the set up of a VEBA that was to absorb the costs of retiree’s health care from the balance sheet. The department should always ensure the timely and accurate release of information to the departments.

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Information Technology

This department ensures that the company keeps up with the current technology in the market. For instance, this unit is thinking if implementing the PC Power Management Program to reduce the consumption of energy.

Financial and Accounting Department

This has the responsibility of preparing financial statements as well as allocating resources to resourceful projects. This department has tried to streamline funds on wisely chosen activities that enhance its value. However, it has a number of setbacks as discussed below.

The underlying accounting problem

Ford Motors reports its financial statements under the General Accepted Accounting Procedure that were formulated by the Financial Accounting Standard Board. This procedure allows the comparison of various companies across the U.S. operating in the automobile industry. However, several companies go against the rules and procedures. This means that their financial statements will create a false impression to those who may need the information to make informed decisions. This includes investors for investment purposes, employees who may want to know whether their job is secure, the government that is interested in how much to tax and indeed the public who might want to know whether the company is operating ethically such as reducing pollution. Ford Company has been accused of insincerity in posting its financial statements. It is said to have exaggerated its revenue while freezing its expenses in a bid to show its strong performance to stakeholders. Its poor performance in other countries led to the closure of its Jaguar and Land Rover subsidiaries in the U.K. This is against the principle of sincerity, which advocates for good faith when reporting the accounting units to reflect the true financial position (Kotabe & Helsen, 2008).

Alternative courses of action to the problem

In relation to this problem, the company should allow its account to be audited by several external auditors that should be independent of the Board of Directors and the firm. This will minimize the rate of posting false information. Furthermore, the company should employ individuals on a merit basis and that goes to the extent of seeking individuals of high integrity. This commonly must apply when it comes to the appointment of the top management (Hamel & Prahalad, 1996).

Effects of the accounting manipulation

The motive of manipulating the accounts targets several parties. It first attracts potential investors or gives false confidence to existing shareholders of the strong financial position the company is having as reflected by the value of its shares at the New York Stock Exchange. In addition, it also assures employees of the company’s continued excellent performance hence guaranteeing them their job security. The management had failed in its part and needs to show the company’s good performance through manipulation of the accounts. This led to the company laying off several workers because of wrong decisions made based on the false information created by its financial statements. Investors could purchase the stocks basing their decisions on the insincere information provided by the company only for the value of the stock to decline over time (El-Kahal, 2006).

Recommendations on the existing problem

Keeping in mind that Ford Motors Corporation is a multinational company, it should go a step ahead and utilize the International Accounting Standards and Rules as much of its business is extended globally. This will enable an easy comparison of the performance of Ford Company and other companies across the world. This would ensure that the company earns a competitive advantage at the global level. Additionally, the company should allow examination of its account by external auditors who are independent of the Board of Directors and the firm so that they give a fair and unbiased report of the financial statements that reflects the true position of the organization. Finally, the company should ensure the individuals appointed at the management level are of high integrity. This to large extent will help avoid misleading information.

References

Britton, A. & Waterston, C. (2009). Financial accounting. New York: Pearson Education, Ltd

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El-Kahal, S. (2006). Introduction to international business. New York: McGraw-Hill.

Hamel, G. & Prahalad, C. (1996). Competing for the future. New York: Harvard Business School Press.

Kotabe, M. & Helsen, K. (2008). Global marketing management, 4th Ed. New York: John Wiley and Sons.

Lucey, T. (2003). Management Accounting, 5 Ed. London: Continuum.

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