INTERNATIONAL ACCOUNTINGANNUAL REPORT AS COMMUNICATIVE DEVICE AND COMPARISONHonda Motor Company & Ford Motor Company

ABSTRACT

This paper attempts to review and compare the annual report from different countries but in the same industry and using the same year. The reason behind is because annual report becomes increasingly important and is critical for making economic decision. The annual report, as a communicative device, is expected able to give better understanding for users (shareholders) to assess the companies' performance and outlook into future prospects of the corporation. Therefore, this paper will compare the annual report from the automotive industries, which are Honda Motor Company and Ford Motor Company.Firstly, this paper will give a brief explanation related with the function and structure of annual report. Then, a brief description and profile about two automotive companies is also presented. Thirdly, the annual report between those companies will be reviewed by selecting some critical items from the information provided. This analysis emphasizes the annual report as a communicative device for domestic and foreign users. Lastly, the conclusion will be presented to summarize the annual report comparison between Honda Motor Company and Ford Motor Company.

SECTION 1INTRODUCTIONAnnual reports are documents that corporations, schools, nonprofit organizations and other agencies issue on a yearly basis to give investors, members and analysts information about their ongoing activities and recent results. Many types of organizations prepare and issue annual reports. Nonprofit groups use annual reports to improve transparency and remain accountable to their donors and grantors. Schools use annual reports as a way of measuring progress toward district, state and national education goals. School annual reports also discuss how money has been spent, and where future budget needs stand. Corporate annual reports are the most complex and include volumes of information about the company's performance. Some states and stock exchanges require companies to produce annual reports for the benefit of investors, overseers and economic analysts.As a communicative device, annual reports are widely regarded as an important means in making economic decisions based on the companies' performance and outlook into future prospects of the corporation. Investors typically look at the financial information contained in an annual report. The annual report can show investors which areas of the company are performing well and which areas are stagnant or in decline, and whether current debt levels are sustainable or will need to be increased.The functions of the annual report are: The stewardship and accountability function Annual report is useful for reporting to shareholders. The shareholders themselves are including investors, employees, customers, suppliers, and society. The decision making functionAnnual report provides information about performance and changes in the financial position of an enterprise that is useful to a wide range of users in making economic decisions. Annual report also providing users, especially shareholders with financial information so that they can make decisions such as buying or selling shares.

The public relations functionThe annual report is an opportunity to publicize the corporate image. Society may look more favorably on companies that demonstrate a society and environmental commitment by highlighting achievements in their annual reports.

Meanwhile, each company usually has similar structure of annual report. The structure of annual report is usually as follows. StatementsCorporate annual reports open with a table of contents, followed by personal statements from a series of key people in the company. Chief executive officers, board members and auditors all commonly write a statement that appears near the front of the annual report. These statements may respond to criticism, lay out a general vision for the future, comment on the content of the report or discuss the structure of the report and the process through which it was developed. Financial DataThe middle section of an annual report includes the financial data for the company's performance during the past 12 months. This section requires many pages and usually takes the form of a series of graphs, lists, charts and tables. Balance sheets compose part of the annual report's financial section, along with data on cash flow, income and investment yields. ClosingThe financial section of an annual report often closes with a stock price history to reflect one of the most important pieces of information to investors. The report closes with a series of appendices that the financial statements refer to or use to support their data. The final pages of an annual report may also give relevant contact information for the company including a full list of executive personnel or board of directors, as well as addresses and phone numbers for offices and branches around the world.

Therefore, annual report becomes more important nowadays. Then, in order to get more understanding about annual report as a communicative device, this paper will provide a comparative analysis between two automotive corporations, Honda Motor company and Ford Motor Company.

SECTION 2COMPANY PROFILE

HONDA MOTOR COMPANY, LTD

Honda Motor Company, Limited is a Japanesepublic multinational corporationprimarily known as a manufacturer of automobiles and motorcycles. Honda has been the world's largest motorcycle manufacturer since 1959,as well as the world's largest manufacturer ofinternal combustion enginesmeasured by volume, producing more than 14 million internal combustion engines each year.Honda became the second-largest Japanese automobile manufacturer in 2001. Headquartered inMinato, Tokyo, Japan. Their shares trade on theTokyo Stock Exchangeand theNew York Stock Exchange, as well as exchanges in Osaka, Nagoya, Sapporo, Kyoto,Fukuoka, London, Paris and Switzerland.The company has assembly plants around the globe. These plants are located in China, the United States, Pakistan, Canada, England, Japan, Belgium, Brazil, Mxico, New Zealand, Malaysia, Indonesia, India, Thailand, Turkey, Taiwan, Per and Argentina. As of July 2010, 89 percent of Honda and Acura vehicles sold in the United States were built in North American plants, up from 82.2 percent a year earlier. This shields profits from the yens advance to a 15-year high against the dollar.Honda was the eighth largest automobile manufacturer in the world behind General Motors,Volkswagen Group,Honda,Hyundai Motor Group,Ford,Nissan, andPSAin 2011. Honda was the first Japanese automobile manufacturer to release a dedicated luxury brand,Acura, in 1986. Aside from their core automobile and motorcycle businesses, Honda also manufactures garden equipment, marine engines, personal watercraft and power generators, amongst others. Since 1986, Honda has been involved with artificial intelligence/robotics research and released theirASIMOrobot in 2000. They have also ventured into aerospace with the establishment ofGE Honda Aero Enginesin 2004 and theHonda HA-420 HondaJet, which began production in 2012. In 2013, Honda invests about 5.7% of its revenues in research and development (6.8 billion dollars).

FORD MOTOR COMPANY

Ford Motor Company is an American multinational automaker headquartered in Dearborn, Michigan, a suburb of Detroit. It was founded by Henry Ford and incorporated on June 16, 1903. The company sells automobiles and commercial vehicles under the Ford brand and luxury cars under the Lincoln brand. In the past it has also produced heavy trucks, tractors and automotive components. Ford owns small stakes in Mazda of Japan and Aston Martin of the United Kingdom. It is listed on the New York Stock Exchange and is controlled by the Ford family, although they have minority ownership. In 2008, Ford produced 5.532 million automobiles and employed about 213,000 employees at around 90 plants and facilities worldwide.Ford is the second-largest U.S.-based automaker and the fifth largest in the world based on 2010 vehicle sales. At the end of 2010, Ford was the fifth largest automaker in Europe. Ford is the eighth-ranked overall American-based company in the 2010 Fortune 500 list, based on global revenues in 2009 of $118.3 billion.

SECTION 3COMPARISON

As a communicative device, there are five valuation criteria that can be used to evaluate the annual report of Honda Motor Company and Ford Motor Company; they are content and appearance of annual report, message to shareholders, executive members, management discussion & analysis of financial condition and results of operations, financial information.

1. Content and Appearance of Annual ReportThe content of an annual report, at least, should contain a mission statement, a letter from the president, a financial summary and an operations and management review highlighting recent accomplishments. An annual report can also be packaged with engaging photos and text, as well as charts and diagrams in order to make more attractive. The accomplishment of this valuation can be seen from the clarity of the annual report itself. If the annual report is clearly written, the intended message will be delivered effectively.

Honda Motor CompanyHonda annual report is based on the year ended 31 March 2011. At the earlier page, Honda presented a digest to give a better understanding about the global vision of Honda. Then, it followed with table of content.Honda has a very complete and clear table of content. They also make sub list in every list in table of content, such as in message/vision, business and performance review, management, risk factors and corporate information, and financial section and investor information. Moreover, they also give more detail explanation in some important points. For example: Message from the President, Honda Global Vision, Special Feature: Hondas Safety Technology, New Business, New Management Structure, and Outline of Results and Future Prospects: Message from the Executive Vice President Responsible for Accounting.In overall, Honda annual report is more structured and detail in giving information. It is also easier to use, because they always provide link in every section to jump from one section to other sections that users want. Ford Motor CompanyFord annual report is based on the year ended 31 December 2011. At the content page, Ford does not have table of content as complete and clear like Honda Company. However, they put Operating Highlight in the year 2010 and 2011 to make easy the users to compare the operating results during last 2 years. In the operating highlights, they presented their Revenues, Financial Results, Amounts Attributable to Ford Motor Company, Cash and Spending, and Shareholder Value. In this page, they also included the company vision, which is one ford, one team, one plan, and one goal.Meanwhile, Ford annual report has a better layout or appearance rather than Honda. The size of font is bigger and easier to read, and not boring for the users. They also used a lot of pictures in order to make their annual report more attractive. Reading Ford annual report is just like reading magazine. But that appearance only applied at the beginning. Starting from financial section, their annual report become boring and flat.

2. Message to ShareholdersIn each annual report, the chairman and president or chief executive officer of the company write a message about an overview of the performance of the business the past year, expectations for the coming year and a discussion of key events. Through message to shareholders, the executive explains particular accomplishments, goals and challenges faced by the company. The message may address particular projects, new services and products, and steps the company is taking to meet its goals.

Honda Motor Corp.The core of Honda corp. message to shareholders is aiming for future initiative, and recovery for Japan. Honda might not provide clear strategies in achieving their goals like Ford Company did. However, in Honda annual report, they gave their sympathy towards the victims of earthquake tragedy in East Japan and floods in Thailand. Through their Honda Global Vision, they were providing support, working together with local residents to reconstruct and restore the communities. The interesting point about Honda is their priorities towards the earthquake tragedy and also empowering the society. Specifically, their priorities are rescuing and preserving life, then to the restoration of the communities, with restarting production only considered after the situation stabilized. The challenge is about What kind of company should Honda be? Honda wants to strive to be a company that people choose, and that people are happy to have chosen. Honda believed that being able to make a steady profit while meeting all tax obligationsno matter the economic situationis more meaningful than making a lot of money during the good times.

Ford Motor CompanyThe digest of Ford company message to shareholders is continuing profitable growth and adding value for all of the stakeholders. A number of challenges were stated in their message to shareholders, including ongoing economic uncertainty, rising fuel and commodity costs, and the need to reduce CO2 emissions. In addition, growing worldwide sales volumes, particularly in developing markets, are raising concerns about traffic congestion in major cities.Fords goals are continuing to increase our worldwide sales and improve operating margins, so that the result will be profitable growth for all of our stakeholders. Moreover, they also explain steps to achieve their goals, through great products, strong business, commitment to better world (environmental and social goals), and also looking ahead (focusing on One Ford plan).However, different with Honda, Fords did not give many concerns about the environment like Honda did. They must give more attention to this area because some shareholders are reluctant toward a company that only concern about reaping profits.

3. Executive MembersIn annual report, it usually provides the users (shareholder) the members of board director, the executives, and also management team as the parts of the company.

Honda Motor Corp.In Honda annual report, the management team is divided into three, which are Board of Directors, Corporate Auditors, and Operating Officers. The Board of Directors cover chairman of the board, president, executive vice president, and senior managing directors. All of them are members of board. On the other hand, corporate auditors cover full-time corporate auditors and corporate auditors and lastly, the Operating Officers contains of Chief Operating Officers and officers in-charge. The layout of Honda executive members is more attractive and easy to understand compare to the Ford one. It is because each member is equipped with his or her name, title, personal photo, and his or her position in the company.In addition, Honda also modified the management structure, in order to create a structure that can meet the following objectives: 1) convey customer opinions and onsite information to management in a timely manner, 2) make prompt management decisions based on onsite information and 3) make constant checks as to whether management decisions are acceptable to society.

Ford Motor CompanyIn Ford annual report, their management is divided to board of directors, executive officers group, and other vice presidents. Board of directors lists all the members together with the committee membership, whether they work as a member of audit, compensation, sustainability, finance, and the last, nominating and governance. Meanwhile, executive officers group and other vice presidents stated all the person in charge including with their position in the company. The layout of executive members in Ford is quite confusing. They also do not equipped executive members with the personal photo. This will make the appearance of their executive members is not good looking and interesting.

4. Management Discussion & Analysis of Financial Condition and Results of OperationsUsers of the annual report are also provided with the Management Discussion & Analysis. In this part, it explains the overview of financial performance and all aspects of the business in detail. The Management Discussion & Analysis discusses performance of individual business units; explain reasons for performance, list risk factors, and any other item that is relevant to the business operations. Significant business moves including mergers, acquisitions, sales strategies and research and development are mentioned. Moreover, it also explains about a large profit or loss in the past year and its impact on earnings and company growth.

Honda Motor Corp.Management Discussion & Analysis of Financial Condition and Results of Operations in Honda is a part of financial section and investor information. Firstly, it gives overview about the business segments of Honda that include automotive operations, financial services operations and all other operations. Secondly, it provides the Honda result of operation. According to geographic breakdown, Honda business itself is operating in Japan, North America, Europe, Asia, and Others (Central and South America, Oceania and Africa). From this point of view, Honda compares their operation result between two years, for example 2011 with 2010 fiscal year. The operation result emphasize on net revenues, operating cost and expenses, operating income and loss, other income and expenses, income taxes, and etc.The last part, Honda discuss some relevant information toward their business, such as outlook or expectation about the future operation, liquidity and capital resources, lending commitment, contractual obligation and commitment, critical accounting estimates, and also market risk disclosure.Compare to the Ford Management Discussion & Analysis, Honda still has a better layout through its colorful pages. Furthermore, it is easier for users to understand the management discussion and analysis of Honda rather than Ford. The reason is, Honda provide data about financial summary, consolidated segment information, consolidated and quarterly financial summary, before entering the management discussion and analysis. Hence, users can get a better depiction first before analyzing the management discussion.

Ford Motor CompanyIn contrast, Management Discussion & Analysis of Financial Condition and Results of Operations in Ford is a part of financial content. Firstly, they discuss about the overview of the Fords financial condition. It emphasizes on their revenues, cost and expenses, key economic factors and trends affecting the automotive industry (such as global economic conditions, excess capacity, pricing pressure, commodity and energy price increases, vehicle profitability, and also currency exchange rate volatility).Secondly, they provide the total company operation result. Fords divides their operation into automotive sector and financial services sector. In the automotive sector, Fords present their operation result based on geographical segment (North America, South America, Europe, and Asia Pacific Africa segment). Then they compare the result of automotive sector between two fiscal years. Meanwhile, financial services sector covers Fords credit, Securitization transaction by Fords credit, and on-balance sheet arrangements. Lastly, similar with Honda, Fords discuss about the outlook of their future business (emphasize on the risk factors), accounting estimates (emphasize on warranty and product recalls, pensions, other postretirement employee benefits, valuation of deferred tax assets, allowance for credit losses, accumulated depreciation on vehicles subject to operating leases), and the last, aggregate contractual obligations.Ford has different structure with Honda in terms of management discussion and analysis. Specifically, they enter directly to the overview (discussion and analysis) first, and then at the end, they provide the data about the company financial performance. I think it will be easier for users to understand by reading the financial data first, and then jump to the discussion and analysis. Unfortunately, this part becomes worse when the appearance of management discussion and analysis of Ford is only black and white. In consequences, it will make the users bored to read the annual report.

5. Financial Information The financial information consists of all data about financial statement. The financial Statements include consolidated balance sheet, consolidated income statements, consolidated cash flow statement, consolidated of shareholders equity statement, and also notes to consolidated financial statement. It also provides details of income and expenses including revenue, cost of sales, profit, expenses and net income.

Honda Motor Corp.All financial information discussed in this section is derived from Hondas consolidated financial statements that appear elsewhere in this annual report. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In the Financial Section and Investor Information, Honda presented: Message from the Executive Vice President Responsible for Accounting Selected Financial Summary (U.S. GAAP) Consolidated Segment Information Consolidated Quarterly Financial Summary Managements Discussion and Analysis of Financial Condition and Results of Operations Consolidated Financial Statements Notes to Consolidated Financial Statements Managements Annual Report on Internal Control over Financial Reporting Report of Independent Registered Public Accounting Firm Investor Information

From the financial section, we can see that Honda provided financial information very detail and excellent. Here below are some important points captured from the Honda financial data. Message from the Executive Vice President Responsible for Accounting is one of the unique content that Ford do not have. Here, the vice president for accounting discuss about fiscal 2011 business result, consolidated financial forecasts for fiscal 2012, financial strategy, and dividends and shares acquisitions. The financial summary is based on U.S. GAAP accounting principle. Their financial summary used yen as the currency. Honda also presented Notes to Consolidated Financial Statements that explain, the parent company and its subsidiaries in Japan and its foreign subsidiaries maintain their records and prepare their financial statements in accordance with accounting principles generally accepted in Japan and those of their countries of domicile. Certain adjustments and reclassifications have been incorporated in the accompanying consolidated financial statements to conform to U.S. GAAP. There are also presented a very detail significant accounting policies for adjustments, such as estimates, translation of foreign currencies, revenue recognition, finance receivables, allowance for credit losses, inventories, property, plant and equipment, goodwill and intangible assets, employee benefit obligations, environmental matters, income taxes, accounting changes, and reclassifications. Furthermore, U.S. dollar amounts presented in the consolidated financial statements and related notes are included solely for the convenience of the reader and are unaudited. For this purpose, the rate of 83.15=U.S.$1, the approximate current exchange rate at March 31, 2011, was used for the translation for the accompanying consolidated financial amounts of Honda.

Ford Motor CompanySimilar with Honda, Ford provides financial information in conformity with generally accepted accounting principles in the United States of America. Ford financial content consist of: Managements Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Report of Independent Registered Public Accounting Firm Consolidated Statement of Operations Sector Statement of Operations Consolidated Balance Sheet Sector Balance Sheet Consolidated Statement of Cash Flows Sector Statement of Cash Flows Consolidated Statement of Equity Notes to the Financial Statements Selected Financial Data Employment Data Managements Report on Internal Control Over Financial Reporting New York Stock Exchange Required Disclosures

Although, Ford did not provide financial information as detail and complete as Honda, however, there are some important points that users might consider. Adoption of New Accounting StandardsTroubled Debt Restructurings. On July 1, 2011 Ford adopted the new accounting standard related to a creditor's determination of whether a restructuring is a troubled debt restructuring ("TDR"). The new standard provides additional guidance as to whether a restructuring meets the criteria to be considered a TDR. Business Combinations. On January 1, 2011 Ford adopted the new accounting standard on business combinations. The new standard requires public entities that present comparative financial statements to disclose the revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the prior annual reporting period. Moreover, there are also some accounting policies that are significant for Ford in making annual report, they are Use of Estimates, Foreign Currency Translation, Trade Receivables, Revenue Recognition (Automotive Sector & Financial Services Sector), Retail and Lease Incentives, Sales and Marketing Incentives, Supplier Price Adjustments, Raw Material Arrangements, and Labor Costs.

SECTION 4CONCLUSION

Many types of organizations prepare and issue annual reports. Corporate annual reports are the most complex and include volumes of information about the company's performance. As a communicative device, annual reports are widely regarded as an important means in making economic decisions based on the companies' performance and outlook into future prospects of the corporation. Hence, the functions of the annual report are the stewardship and accountability function, the decision making function, and the public relations function.There are five valuation criteria that can be used to evaluate the annual report of Honda Motor company and Ford Motor Company as a communicative device; they are content and appearance of annual report, message to shareholders, executive members, management discussion & analysis of financial condition and results of operations, financial information.From the valuation toward content and appearance of annual report, Honda has a very complete and clear table of content. In overall, Honda annual report is more structured and detail in giving information. It is also easier to use, because they always provide link in every section to jump from one section to other sections. On the other hand, Ford does not have table of content as complete and clear like Honda. However, they put Operating Highlight to compare the operating results during last 2 years. At the beginning, Ford annual report has a better layout or appearance rather than Honda. They used a lot of pictures in order to make their layout more attractive. However, up to the financial section, Ford annual report does not interesting anymore. Hence, from the appearance, Honda annual report is more consistent than Ford.The second valuation is about message to shareholders. The interesting point about Honda is their priorities towards the earthquake tragedy and also empowering the society. Specifically, their priorities are rescuing and preserving life, then to the restoration of the communities, with restarting production only considered after the situation stabilized. In contrast, although Ford stated the challenges and also explained steps to achieve their goals clearly, Fords did not give many concerns about the environment like Honda did.Based on the executive member valuation, the layout of Honda executive members is more attractive and easy to understand compare to the Ford one. It is because each member is equipped with his or her name, title, personal photo, and his or her position in the company. In addition, Honda also modified the management structure, in order to create a structure that can meet their objectives. Meanwhile, the layout of executive members in Ford is not good looking and interesting. They also do not equipped executive members with the personal photo.The fourth valuation is about management discussion & analysis of financial condition and results of operations. It is easier for users to understand the management discussion and analysis of Honda rather than Ford. The reason is, Honda provide data about financial summary, consolidated segment information, consolidated and quarterly financial summary, before entering the management discussion and analysis. Hence, users can get a better depiction first before analyzing the management discussion. In contrast, Ford has different structure with Honda in terms of management discussion and analysis. Specifically, they enter directly to the overview (discussion and analysis) first, and then at the end, they provide the data about the company financial performance.The last valuation criteria are on the financial information. From the financial section, Honda is not only providing very detail and excellent financial information, but we can also capture some important points from its financial data. For example: Message from the Executive Vice President Responsible for Accounting, financial summary, Notes to Consolidated Financial Statements, significant accounting policies, and also information that U.S. dollar amounts presented in the consolidated financial statements and related notes are unaudited. Nevertheless, there are still some important points users can obtain from Adoption of New Accounting Standards (especially in the Troubled Debt Restructurings and business combination) and also some accounting policies that are significant for Ford in making annual report. As a communicative device for domestic and foreign users, I think Honda annual report is still better than Ford annual report, in overall. The reason is because Honda more consistent in providing their annual report, as we can see from the detail information provided and the layout itself. Nevertheless, different users will have different preference. Some people might also think Ford annual report is better than Honda due to an eye catching layout and using the currency denominated in dollar. As a matter of fact, Honda annual report is still use yen in many of their financial statement.

REFERENCES

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