Explanation of Similarities and Differences

Discuss About The Finance Reporting And Corporate Governance?

The financial statements of the companies are prepared according to the instructions provided in the generally accepted accounting principles (GAAP). The GAAP of different countries is different, for example, the Australian companies follow AASB GAAP, the companies in USA follow US GAAP, and there is international GAAP also being prescribed by IASB. The generally accepted accounting principles are set by referring to the basic accounting concepts and principles such as cost and fair value principle, concept of accrual and prudence, principles of double entry etc. The principles of historical cost state that the assets of an entity should, for first time, be recorded based on the historical cost (Broadbent & Cullen, 2012).

Further, there are few assumptions that are required to be made in preparation of the financial statements of the entities. The primary among them are the assumption of monetary unit and economic entity. As per the monetary unit assumption, the accounting records should include only the transactions capable of being expressed in monetary terms. The assumption of economic entity states that the activities of an entity are separate and distinct from those of its owners. It implies that the entity has a legal status separate from its owners (Broadbent & Cullen, 2012). Further, the historical cost convention provides a basis for measurement of the financial items such as assets and liabilities. As per the historical cost model, an item of asset is recorded in the financial statements at the cost at which it was acquired. The historical cost convention assumes that the value of an item of asset being recognized in the books at the historical cost would remain unchanged over the period of time. However, this assumption of historical cost convention does not seem to be appropriate because the value of items of assets may change in future (Lee, 2007).

The impact on comparison of the financial statements of three items such as accounting convention and accounting standard, consolidation, and foreign currencies is significant. In particular if one is looking compare Nestle (USA) with Patties Food Limited (Australia), the provisions of GAAP will play a significant role. The consolidated financial statements of Nestle are prepared under the IASB GAAP while that of Patties Food Limited are prepared under AASB GAAP (Nestle, 2016). The accounting conventions and accounting standards provided under the US GAAP are different from that provided under the AASB GAAP. Although the basics are same but differences exists in presentation and measurement of certain items of financial statements.

Changes in IFRS

Further, while comparing the financial statements of two entities, it should also be seen that the financial statements are consolidated or standalone. The consolidated financial statements comprises of the financial statements of parent and all its subsidiaries (Robinson et al., 2015). The comparison of two entities would not be fruitful if one’s financial statements are consolidated and other’s are standalone. Further, the foreign currency transactions in the financial statements are also crucial to be taken into account for comparison purposes. The financial figures may substantially differ due to involvement of the foreign currencies. The profit or loss on account of foreign currency translation may affect the financial position of the company severely.                  

The consolidated financial statements of Nestle have been prepared based on the GAAP prescribed by IASB. Thus, in preparation of the financial statements of Nestle, the international accounting standards have been followed. On the other hand, the financial statements of Patties Food Limited have been prepared applying AASB GAAP (Pattiesfoods, 2015). Thus, the financial statements of Patties Food Limited have been prepared on the basis of Australian Accounting Standards. The provisions of accounting standards under two GAAPs may be different but the basic principles and concepts are same. Both the accounting frameworks such as IASB as well as AASB follow the accounting concept of accrual and historical cost basis in preparation of the financial statements.

The consolidated financial statements of Nestle are being prepared under the IAS 27 while the consolidated financial statements of Patties Food Limited have been prepared under the AASB 127 (AASB 127, 2007). The provisions of the IAS 27 and AASB 127 are similar, thus, the consolidation processes would be same for Nestle (under IASB framework) and Patties Food Limited (under AASB framework). In regards to foreign currency transactions, it has been observed that AASB 121 has been framed on the same lines of IAS 21. However, there are few presentation requirements in AASB 121 which have been set differently as compared to IAS 21 (AASB 121, 2015).

Nestle prepares its consolidated financial statements under the IASB framework thus the changes in the international financial reporting standards would affect the financial statements of Nestle. There have been a series of changes in the IASB financial reporting standards over the past few years (EY, 2016). The major changes have been observed in the areas of accounting for financial instruments, lease accounting, revenues from contractors, consolidation of the financial statements and defined benefit plans of employees. The changes in all these accounting standard would affect the financial statements of Nestle in the coming periods. For example, now lease accounting would under the single model and all leases would be shown on the face of balance sheet rather showing under the balance sheet as foot note (EY, 2016).   

Nestle aims at delivering the best food products to its customers. The company works under the strategy of identifying the differing needs of the customers and exploring new products and services to serve them in the better manner (Nestle, 2017). The company is inspired by healthier lives and it makes proactive efforts to educate the customers by disseminating nutrition knowledge. The company promises the use of quality material in making the health products. The company has huge research and development capabilities that enable it to invent healthier products for the customers. The company enjoys digital innovation as one of its major competitive advantages (Nestle, 2017). The strategic road map of Nestle depends upon the pillar depicted in the diagram given below:

Figure 1: Strategic Road Map of Nestle (Nestle, 2017)

The Basis of Strong Principles

The board of directors of Nestle group is focused on achieving the sustainable growth that enables the group to survive in the long run. The board considers pertinent to strike out the balance between the needs of owners, lenders, society, and the environment. The impetus of the board is on enhancing and strengthening the corporate governance in the company. Further, the board seeks proper alignment between the values and strategies of the company and its business models. According to the governance policy of the company, the transparency in the financial reporting is of utmost importance. The company makes different committees to ensure that the financial reporting is kept transparent. The audit committee and nomination and remuneration committee works in these areas (Nestle, 2017).       

Adjusting journal entries on 30th June 2013
Particulars	Debit	Credit
Supplies expense	2,400.00
Supplies		2,400.00
(Being supplies consumed)
Interest expense	1,000.00
Accrued interest		1,000.00
(Being interest on note payable charged for 5 months)
Prepaid insurance	600.00
Insurance expense		600.00
(Being insurance used for 4 months)
Consulting revenue	1,100.00
Unearned consulting revenue		1,100.00
(Being unearned consulting revenues booked)
Accounts receivables	2,000.00
Graphic revenue		2,000.00
(Being earned graphic revenues booked)
Depreciation	1,500.00
Accumulated Depreciation		1,500.00
(Being depreciation expense booked)

	Unadjusted trial	Adjustments	Adjusted trial
	Debit	Credit	Debit	Credit	Debit	Credit
Cash	9,500.00				9,500.00
Accounts receivables	14,000.00		2,000.00		16,000.00
Equipment	45,000.00				45,000.00
Insurance prepaid	1,800.00			600.00	1,200.00
Salary expense	30,000.00				30,000.00
Supplies	3,700.00			2,400.00	1,300.00
Advertisement expense	1,900.00				1,900.00
Rent expense	1,500.00				1,500.00
Utilities expenses	1,700.00				1,700.00
Notes payable		20,000.00				20,000.00
Accounts payable		9,000.00				9,000.00
Jill Salzer, Capital		22,000.00				22,000.00
Graphic revenue		52,100.00		2,000.00		54,100.00
Consulting revenue		6,000.00	1,100.00			4,900.00
Supplies expense			2,400.00		2,400.00
Interest accrued on note (20000*12%*5/12)				1,000.00		1,000.00
Interest expense			1,000.00		1,000.00
Insurance expenses			600.00		600.00
Unearned consulting revenue				1,100.00		1,100.00
Accumulated Depreciation				1,500.00		1,500.00
Depreciation expense			1,500.00		1,500.00
Total	109,100.00	109,100.00	8,600.00	8,600.00	113,600.00	113,600.00

Income Statement for the Period ended on 30th June 2013
Particulars	Debit	Credit
Revenues
Graphic revenue		54,100.00
Consulting revenue		4,900.00
Total		59,000.00
Expenses
Salary expense	30,000.00
Advertisement expense	1,900.00
Insurance expenses	600.00
Rent expense	1,500.00
Utilities expenses	1,700.00
Supplies expense	2,400.00
Interest expense	1,000.00
Depreciation expense	1,500.00
Profit		18,400.00

Statement of change in equity for the Period ended on 30th June 2013
Jill Salzer, Capital	22,000.00
Add: Profit for 6 months	18,400.00
Closing balance	40,400.00

Statement of financial position for the Period ended on 30th June 2013
	Amount	Amount
Assets
Current assets
Cash	9,500.00
Accounts receivables	16,000.00
Insurance prepaid	1,200.00
Supplies	1,300.00
Non-Current assets
Equipment	45,000.00
Accumulated depreciation	(1,500.00)
Total		71,500.00
Liabilities
Current Liabilities
Accounts payable	9,000.00
Interest accrued on note (20000*12%*5/12)	1,000.00
Unearned consulting revenue	1,100.00
Non-Current Liabilities
Notes payable		20,000.00
Equity
Jill Salzer, Capital	22,000.00
Profit for 6 months	18,400.00
Total		71,500.00

References

Broadbent, M. & Cullen, J. 2012. Managing Financial Resources. Routledge.

Robinson, T.R., Henry, E., Pirie, W.L., Broihahn, M.A. 2015. International Financial Statement Analysis. John Wiley & Sons.

Pattiesfoods. 2015. Annual report of pattiesfoods 2015. Retrieved September 18, 2017, from https://pattiesfoods.com.au/system/investor_documents/files/000/000/193/original/Annual_Report_2015.pdf?1445312740

AASB 127. 2007. Consolidated and Separate Financial Statements. Retrieved September 18, 2017, from https://www.aasb.gov.au/admin/file/content105/c9/AASB127_07-04_COMPjul07_07-07.pdf

AASB 121. 2015. The Effects of Changes in Foreign Exchange Rates. Retrieved September 18, 2017, from https://www.aasb.gov.au/admin/file/content105/c9/AASB121_08-15.pdf

2016. IFRS Update of Standards and Interpretations in Issue at 31 March 2016. Retrieved September 18, 2017, from https://www.ey.com/Publication/vwLUAssets/IFRS_Update_of_standards_and_interpretations_in_issue_at_31_March_2016/$File/IFRS%20Update-March2016.pdf

Nestle. 2016. Annual report of Nestle 2016. Retrieved September 18, 2017, from https://www.nestle.com/asset-library/documents/library/documents/annual_reports/2016-annual-review-en.pdf

Nestle. 2017. Strategy of Nestle. Retrieved September 18, 2017, from https://www.nestle.com/aboutus/strategy

Nestle. 2017. Corporate Governance. Retrieved September 18, 2017, from https://www.nestle.com/investors/corporate-governance

Lee, T.A. 2007. Financial Reporting and Corporate Governance. John Wiley & Sons