Comment this post DL
The goal of international accounting is to balance and simplify financial reporting so that stakeholders have access to high-quality data. “The COVID-19 pandemic crisis and its economic effects mean that investors and other stakeholders need high-quality financial information more than ever” (IFAC, 2020, para 1). In these uncertain times, the diversity in accounting will likely seem compounded due to the necessary adjustments to financial outlooks. For a company such as Nestle, just the differences between U.S. GAAP and IFRS alone can be a massive issue. Add on the effects of COVID-19, and there will surely be a whole new set of troubles ahead.
The IFAC feel there will be an abundance of estimation needed within interim financial reports, but they also caution that there must be as much accuracy and disclosure as possible (IFAC, 2020). To compound estimation efforts, market volatility will affect fair market value. “Determining the factors affecting market capitalization and their impact on fair value requires the application of judgment” (PricewaterhouseCoopers, 2020, p. 8). Estimation and judgement are the typical points of contention between differing accounting standards around the world, thus this will become a larger issue due to COVID-19. PWC goes on to say, that the disruption to normal operations will necessitate reassessments of original estimations and basing these on current market conditions is likely to cause more division (PricewaterhouseCoopers, 2020).
In order to ease the burden of not only diverse international accounting methods but the addition of COVID-19 provisions, there has been much guidance produced. Of all of the points of guidance for alleviating accounting problems due to the pandemic, disclosures is the number one to stand out. “When reporting in uncertain times, it is particularly important to provide users of the financial statements with appropriate insight into the risks and uncertainties facing an entity and the judgements that have been made in preparing financial information” (Deloitte, 2020, p. 2). Nestle and other international corporations must continually disclose as much information as necessary to support operational and financial decisions during these volatile times. As the global economy proceeds through this pandemic, and as well as in the time afterwards, there will be much scrutiny and fear of atypical financial reports. Failure to disclose important factors will certainly be cause for concern among investors and other stakeholders and may be detrimental to an entity’s capital.
Running parallel to disclosures, is the need to see what is unobservable. “Entities will need to pay particular attention to fair value measurements based on unobservable inputs…and ensure that the unobservable input used reflect how market participants would reflect the effect of COVID-19, if any, in their expectations of future cash flows” (Deloitte, 2020, p. 3). As mentioned previously, future financial reporting will also be effected by COVID-19 business decisions, this includes future cash flows after the pandemic has subsided. The unobservable inputs are again necessary in disclosures because they may not be the typical trends and observations of previous reporting periods. Essentially, there is much gray area surrounding the COVID-19 pandemic but the accounting goal is to bring as much information to light as possible. This will ease some, not all, of stakeholders’ fears and uncertainty about the future of their investments and business opportunities.
Comment this post S.D
Nestle may be facing a decrease in demand and supply due to layoffs from COVID-19. Nestle is the world’s largest food and beverage company (Hamprecht, Corsten, Noll, & Meier, 2005). Since Nestle is the number one company for beverages they are making sure that the nation has beverages to help keep people healthy. Despite the commonness of some of the standards, multinational companies have begun the process of hiring global accountants and lawyers to research tax law, auditing practices, and legal instruments tied to the finances of businesses in countries they are operating in (Harper, Leatherbury, Machuca, & Phillips, 2012). Nestle has gotten with Red Cross and others to give back during this pandemic.
We developed a supply chain-specific extension of the TQM framework for milk sourcing Nestle factories (Hamprecht, Corsten, Noll, & Meier, 2005). This extension accommodates the controls of food safety, quality, costs, flexibility, and sustainability of the factories’ major agricultural chain (Hamprecht, Corsten, Noll, & Meier, 2005). Nestle can resolve their problems by taking extra precautions such as allowing front line employees to wear masks and suits to help stop the spread while still being productive and meeting the company needs. One of the ways Nestlé accomplishes its goals is by providing agricultural “extension services” for the hundreds of thousands of rural farmers who are its suppliers (Krushchwitz, 2013).
Answer this question: Video
Go to the International Financial Reporting Standards Foundation (IFRS) youtube website:
Select any IFRS video recording and post a substantive discussion describing the contents of the video and what you learned from watching the IFRS Foundation at work. Please include the URL to the video in your discussion post.
Comment this post SD
I have selected IFRS 17 – February 2020 Podcast. This podcast continues its discussion about technical matters raised by stakeholders when providing feedback on the amendments on IFRS 17 draft. The amendments draft was proposed July 2019. “It is important to note that both GAAP and IFRS represent two of the most basic templates for accounting standards that countries adapt, with many countries promulgating their own versions of either accounting standard, albeit with small variations from country to country” (Popatia, 2017). The plan included 19 topics to consider and the board finalized only 12 of the 19.
One of the five question that was asked was whether the annual cohort requirement should apply contracts that has interest generational sharing of risks. The board stated that it is going to be relatively high because of the complexity inherited (IFRS Foundation, 2020). “As profits are not recognized until the periods when premiums are received and the acquisition costs of insurance contracts are immediately expensed in the first year when they are incurred, the timing differences between revenue and expense recognition causes a “mismatch” between economic profits and accounting profits for each reporting period” (Wu & Hsu, 2011). The effective dates for IFRS 17 and the amendment IFRS 4 for the deferral of IFRS 9 to be considered in March. The boundary of an insurance contract distinguishes the future cash flows that relate to the existing insurance contract from those that relate to future insurance contract (Nguyen & Molinari, 2011). I think Darl had a good point that those question helped the board see from a perspective of other people out there.
Comment this post DL
The video I chose was the IFRS debrief regarding the discussion paper on business combinations. Business combinations fall under IFRS 3 which, “seeks to enhance the relevance, reliability and comparability of information provided about business combinations” (Deloitte, 2012, para 3). Acquisitions of any kind have many moving parts that must come together and not only affect current but future financial statements. The three main areas of concern for business combinations are goodwill, disclosures, and impairments.
Not only does IFRS 3 refer to business combinations but any substantive acquisition. Based on feedback the IFRS has decided to, “Add guidance to help entities assess whether an acquired process is substantive” (Ernst & Young, 2018, p. 1). The additional guidance supplied by the IFRS are the discussion papers, which is reviewed in their video. They speak of the concerns within IFRS 3, including defining substantive acquisitions. Once an entity can definitively determine what acquisitions to report on under IFRS 3, they will need to proceed with recognizing goodwill and disclosures regarding the combination. Future reporting periods will call for impairments and is another reason that necessitates further guidance by the IFRS.
When it comes to business combinations, disclosures are a large part of the financial reporting for those instances. Unfortunately, “One concern highlighted by the review is that investors currently do not get proper information about how well acquisitions perform and they need this information to hold management to account about all the money that they spent” (IFRS Foundation, 2020, 0:36). The IFRS response to this concern is new disclosure requirements regarding objectives of the acquisition and then follow up disclosures of the achievement of these objectives.
Another concern brought to the attention of the IFRS board is that impairment testing is ineffective and expensive. The board was unable to find a better alternative that would not be more expensive. Their only suggestion at this time is to transition from annual testing to a trigger-based test as it will save companies money while it upholds the value of the information for investors (IFRS Foundation, 2020). The IFRS recognizes that goodwill can be subjective and often times arbitrary, which is why the board is proceeding with caution regarding their IFRS 3 guidance.