Question 1.
a. INTERPRETING FINANCIAL STATEMENTS: A global focus
Today, businesses must compete in a global economy. Nestle, a Swiss company, is the largest food company in the world. If you were interested in broadening your investment portfolio, you might consider investing in Nestle. Consider the following excerpts from the notes to Nestle's financial statements.
Accounting convention and accounting standards
The Consolidated Financial Statements comply with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and with the Interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC).
The consolidated accounts have been prepared on an accruals basis and under the historical cost convention, unless stated otherwise.All significant consolidated companies and associates have a 31 December accounting year-end.
Consolidated companies
Companies, in which the Group has the power to exercise control, are fully consolidated. This applies irrespective of the percentage of interest in the share capital.
Foreign currencies
In individual companies. transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at year-end rates.Any resulting exchange differences are taken to the income statement.
On consolidation, assets and liabilities of Group entities reported in their functional currencies are translated into Swiss Francs, the Group's presentation currency, at year-end exchange rates. Income and expense items are translated into Swiss Francs at the annual weighted average rate of exchange or at the rate on the date of the transaction for significant items.
Required
Discuss the implications of each of these items in terms of the effect they might have (positive or negative) on your ability to compare Nestle to a US food company such as Kraft Foods and an Australian food company such as Patties Foods Ltd. (Hint: In preparing your answer review the discussion of principles and assumptions in financial reporting on pages 13-15.)
b. The information provided in Weygandt et al., is from Nestle 2010.
Use the 2016 reports to answer the following four questions.
i. What are the similarities and differences to the three items in part a?
ii. In your own words summarise the major changes in IFRS that may affect the Nestle Group after 2016.
iii. The web site of Nestle states that "Our strategy focuses on delivering distinct benefits to people through the food and beverages, products and services we provide. Over 150 years we have built a successful business by understanding and anticipating the needs of society, and continuously adapting ourselves to seize the opportunities presented to us". (https://www.nestle.com/investors/annual-report).
Outline how Nestle delivers benefits to people through food.
iv. The web site of Nestle states that "Our Board of Directors sets our long-term strategy and provides oversight on the basis of strong principles and an appropriate tone from the top. It ensures the long-term success of our company based on a clear strategy and good corporate governance".
Outline how the Board of Directors of Nestle provides "the basis of strong principles and an appropriate tone from the top"