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INTERNATIONAL ACCOUNTING

ANNUAL REPORT AS COMMUNICATIVE


DEVICE AND COMPARISON
Honda Motor Company & Ford Motor Company


Bernardus Alan Handoko
IUP Accounting 2011
11/311392/EK/18212


Faculty of Economics and Business
Universitas Gadjah Mada Yogyakarta


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 1
INTRODUCTION
Annual 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 function
Annual 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 function
The 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.
Statements
Corporate 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 Data
The 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.
Closing
The 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 2
COMPANY PROFILE

HONDA MOTOR COMPANY, LTD










Honda Motor Company, Limited is a Japanese public multinational
corporation primarily 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 of internal combustion engines measured by volume,
producing more than 14 million internal combustion engines each year. Honda
became the second-largest Japanese automobile manufacturer in 2001.
Headquartered in Minato, Tokyo, Japan. Their shares trade on the Tokyo
Stock Exchange and the New 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,
and PSA in 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
their ASIMOrobot in 2000. They have also ventured into aerospace with the
establishment of GE Honda Aero Engines in 2004 and the Honda 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 3
COMPARISON

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 Report
The 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 Company
Honda 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 Company
Ford 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 Shareholders
In 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 Company
The 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 Members
In 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 Company
In 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
Operations
Users 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 Company
In 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 Company
Similar 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 Standards
Troubled 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 4
CONCLUSION

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


Ford Motor Company. http://www.ford.com/
Honda Motor Company. http://www.Honda-global.com/
Honda Annual Report 2011.
http://www.Honda-global.com/investors/ir_library/annual/pdf/
Ford Annual Report 2011.
http://corporate.ford.com/doc/2011_annual_report.pdf
http://en.wikipedia.org/wiki/Honda
http://en.wikipedia.org/wiki/Ford_Motor_Company
By Charles Green, eHow Contributor. Five-usually-contained-annual-
report.
http://www.ehow.com/
Peter Lancett, eHow Contributor. Uses of an Annual Report | eHow.com
http://www.ehow.com/
Dennis Hartman, eHow Contributor. The Structure of Annual Reports
http://www.ehow.com/
Terence Channon, eHow Contributor. Elements-annual-report
http://www.ehow.com/