Interpreting Financial Statements Global Focus

Question: Discuss about the Interpreting Financial Statements for Global Focus. Answer: Introduction: In order to make major accounting estimates and judgements, the top management of Nestle needs to exercise judgements and policies that influence the policy applications, reported revenue amounts, disclosures, assets and liabilities. The organisation is engaged in reviewing the assumptions and estimates made on ongoing basis (Nestle.com, 2017). However, these estimates are developed based on the past records and other qualitative factors under such conditions. Therefore, the actual results might vary from these estimates. In case of Krafts Food, GAAP is followed and the financial statements have been developed on standalone basis. In addition, it considers the methodology of expense allocation and reasonable results for all periods (Ir.kraftfoodsgroup.com, 2017). For Patties Foods, the financial statements have been developed in accordance with AASB and IFRS. It focuses on the convention of historical cost and makes accounting estimates based on the past data (Patties.com.au, 2017). The revisions to accounting estimates have been conducted in the period, in which the anticipation is revised. However, it is considered at the time the revision affects the period or both current and future periods. Therefore, these areas have major impact on goodwill, employee benefits, taxes, hyperinflation and allowance for doubtful receivables. Foreign currencies: Nestle and Patties Foods record the foreign currency transactions at the date, in which the same takes place at the exchange rate. The monetary liabilities and assets are converted at the rates of year-end. The variations arising from the opening net asset retranslation along with variations from the restatement of the net outcomes are realised in comprehensive income (Collier, 2015). The balance sheet operating in hyperinflationary nations are restated for the variations in coming buying power of the local currency by utilising official indices at the date of balance sheet. This is conducted before converting the same into Swiss Francs. At the time of control change in cross-border operations, the variations have been recorded into equity and these are realised in the income statement in the form of disposal gain or loss. Such representation would increase the transparency and reliability of the financial statements of Nestle. In case of Krafts Foods, the net revenues have fallen by 4.9% in 2014 due to unfavourable effect of foreign currency (6.8 pp). This is because the foreign currencies are not considered adequately in recording foreign transactions. Consolidation companies: Nestle Group uses the method of acquisition to consolidate the organisations over which the group exercises control. With the help of such consolidation, the organisation remeasures its past held equity interest at fair value and realises profit or loss in the income statement (Dontoh, Ronen Sarath, 2013). In case of Patties Foods, the group eliminates the unrecognised transaction gains to maintain associate interest. Krafts Food eliminates all the inter-firm transactions, which might result in inaccurate figures in its income statement. From the above discussion, it could be evaluated that both Nestle Group and Patties Foods make accounting estimates and judgements to comply with the global IFRS standard. However, Patties Foods need to comply with AASB for continuing its operations in the Australian market. Therefore, these two organisations review the developed financial statements on an ongoing basis. On the other hand, Krafts Food prepares its financial statements on standalone basis by taking into account the expense allocation methodology. In addition, it has been observed that the foreign currency translations have positive impact on the business operations of Nestle Group and Patties Foods, while the impact is negative in case of Krafts Foods. This is because both Nestle Group and Patties Foods record the variations arising from the opening net asset retranslation along with variations from the restatement of the net outcomes are realised in comprehensive income. In opposition, Krafts Food does not follow any standard policy in translating such currencies. Nestle Group uses the acquisition method for consolidation purposes, while Patties Foods writes off gains from unrealised gains from transactions. On the contrary, Krafts Food eliminates all the inter-company transactions for consolidation purpose. The following are the changes in IFRS in 2015, which might affect Nestle Group in conducting its business operations: IFRS 9 associated with the financial instruments might influence the accounting of Nestle in its for-sale financial assets. This is because it only permits the realisation of gains and losses of fair value in other comprehensive income under certain circumstances. This is coupled with particular features of cash flow, which would not be reclassified to the income statement at future period. IFRS 15 dealing with revenue from contract with customers has defined a new five-phase model for realising revenue associated with customer contracts. The impact of such standard is yet to be assessed before its implementation on 1st January 2018. IFRS 16 associated with leases would replace IAS 17 for measuring, realising, presenting and disclosing leases. This standard has proposed an accounting model of single lessee, which needs the same to realise assets and liabilities. As a result, it would raise the overall asset and liability bases of the organisation (Van Auken Carraher, 2013). Along with this, the greater operating expense would offset the operating profit of Nestle Group under this new standard, which would come into effect from 1st January 2019. References: Collier, P. M. (2015).Accounting for managers: Interpreting accounting information for decision making. John Wiley Sons. Dontoh, A., Ronen, J., Sarath, B. (2013). Financial statements insurance.Abacus,49(3), 269-307. Ir.kraftfoodsgroup.com. (2017).Ir.kraftfoodsgroup.com. Retrieved 4 January 2017, from https://ir.kraftfoodsgroup.com/annuals.cfm Nestle.com. (2017). Retrieved 4 January 2017, from https://www.nestle.com/asset-library/documents/library/documents/annual_reports/2015-annual-review-en.pdf Patties.com.au. (2017). Retrieved 4 January 2017, from https://annualreport2014.patties.com.au/wp-content/uploads/2014/10/Patties_Foods_Annual_Report_2014.pdf Van Auken, H., Carraher, S. (2013). Influences on frequency of preparation of financial statements among SMEs.Journal of Innovation Management,1(1), 143-157.