Question

For this discussion, imagine that you are the CFO of a United States-based international manufacturing company:

• Propose an action that you would take in order to defend the difference in the required rate of return for your company on similar projects in an established market, as compared to the same investment in an emerging market.

• Provide a rationale for your response.  

Answer 1

Markets in developed nations present an array of challenges to investors. These challenges are compounded when investing in emerging markets because acquiring information about emerging markets is difficult. The differences between developed and emerging markets range from the sequence and method of trade to the company requirements for reporting market exchanges.

As a CFO of us based international manufacturing company, the first action I will take is considering the risk factors between the emerging markets and established markets. A risk analysis is needed. A higher risk project would be evaluated using a higher discount rate. Another action I will take is conducting a post audit.

Brief information that supports my above conclusions;

The Risks of Investing in Emerging Markets ;

Often seem to offer to provide new investment opportunities, their elevated economic growth rates offering higher expected returns-not to mention the benefits of diversification. But there are several risks that potential investors should be aware of before planting seeds of their capital in one of these up-and-comers.

Emerging markets have been one of the hottest investment areas since the early 2000s, with new funds and investments popping up all the time.

While there is no doubt that lucrative gains may await investors that can find the right emerging market investment at the right time, the risks involved are sometimes understated.

With high-risk, high-reward investments, you need to understand and evaluate each of the risks specific to emerging markets before jumping in.

The Importance of Audit Profession Development in Emerging Market Countries

This study investigates the country-level development of the audit profession in emerging market countries and whether this development is associated with audit quality and auditor choice. I find that audit quality is higher for client companies located in countries with a more developed audit profession, after controlling for the rule of law and investor protection. Specifically, Big 4 client companies’ total and abnormal accruals are both lower, and earnings are more conservative in countries with stronger Audit Profession Development (APD). However, these results hold only for companies audited by a Big 4 auditor. Results also indicate that stronger audit profession development is associated with a greater likelihood a client company hires a Big 4 auditor. My findings contribute to the literature that explores differences in audit quality and determinants of auditor choice, the literature that explores cross-country differences in audit professions, and research on audit institutions' characteristics and effectiveness in emerging market economies.