Financial Statements Examination of Non-US Companies That Use IFRS

Financial Statements Examination of Non-US Companies That Use IFRS

Introduction

Various non-U.S companies have been selected for the financial statement examination. The financial statements of the three companies are compared to those of Apple Inc. to establish similarities and differences in financial statement reporting. The three selected companies include Samsung Inc., Sony, and Huawei. The three companies were selected as competitors to Apple Inc. Notably, all companies produce and sell consumer electronics, software programs, and other related products. The next section will analyze the three companies’ presentation of financial statements compared to Apple Inc.

Accounting standards used by the companies

Sony used the Generally Accepted Accounting Principles (GAAP) until June 2021. Beyond that period, the company adopted the International Financial Reporting Financial Standards (IFRS). The company’s decision to adopt IFRS is to make it possible to achieve various accounting objectives. For instance, the company cited in a statement that preparing financial statements per IFRS ensures comparative analysis, which is an objective for preparing financial statements. Samsung Inc., on the other hand, adopts the use of IFRS as adopted by the Korean IFRS. Notably, the Korean IFRS refers to the standards, amendments that followed, and related interpretations that are given out by IASB and accepted for use in Korea. Regarding Huawei Company, IFRS standards are used to prepare and report financial statements. As indicated in the company’s annual reports under the management report, financial statements are presented in accordance with IFRS, the International Accounting Standards Board. Essentially, the adoption is influenced by the need to design, implement, and maintain internal controls relevant to preparing and presenting fair statements free from errors and fraud.

Comparison between the selected companies and Apple

All three selected companies use IFRS to prepare and present financial statements. Notably, this means that their presentation of financial statements is similar. However, the presentation is not completely similar, and differences pointed out in their balance sheets are given. There is a difference in the presentation of financial statements, particularly the balance sheet. The three identified companies report assets in increasing order of liquidity, which means current assets come after non-current assets by IFRS requirements. However, Apple Inc. has its assets listed in declining order of liquidity, whereby non-current assets come after current assets. Comparing the two sets of balance sheets shows that the IFRS balance sheet provides more information than the one based on the U.S. GAAP. In my opinion, a presentation based on IFRS is better for adoption. Notably, this is so because most companies have adopted its usage. Since most companies use the presentation format, it makes it possible to compare their balance sheets easily and derive meaningful conclusions regarding the companies’ financial positions.

IFRS (IAS 1) provides information relating to the presentation of financial statements. Regarding the statement of financial position or the balance sheet, the accounting standard provides that assets should be classified as current or non-current (Muhammad et al., np). The same case should apply to liabilities. However, the accounting standard does not prescribe a specific format that should be followed when presenting a balance sheet. Thus, assets can be presented as current ones following non-current ones or the reverse. Similarly, liabilities and equity can be presented as non-current, then current, then equity, or the reverse. Additionally, the standards allow for a net asset presentation. From these requirements, it is clear that IAS 1 does not require a particular format or order of items on the balance sheet but rather concentrates on the major elements that should be included (Mita et al. 573). Essentially, this agrees with the observation made above whereby crucial elements are included in the balance sheets of the observed companies even though different formats are used. For instance, Apple Inc. reports assets with decreasing liquidity, while Sony, Samsung, and Huawei report assets with increased liquidity, all permitted by IAS 1.

When the IFRS balance sheets for Sony, Huawei, and Samsung are compared to those of Apple Inc., no differences are identified in the classifications that are made. All classifications are the same for companies, making it easier to compare various aspects. For instance, the classifications made in all the companies’ balance sheets include current and non-current assets, liabilities classified into current and non-current liabilities, and shareholder’s equity.

Presentation format and classification discussion

A common presentation format and classification scheme for financial statements should be required for all companies worldwide. Notably, this recommendation is made because of various reasons. First, it makes it easier to achieve the accounting objective of comparing the performance of various companies when the presentation format and classification scheme of financial statements are the same. Second, making the presentation the same reduces the possibility of manipulating financial statements to mislead the users of accounting information (Mohsin et al., 1798). For instance, financial statements based on similar presentation formats and classification schemes make it easier to locate an item, and significant differences between certain elements can raise questions regarding the authenticity of such items. Thus, it is opined that companies worldwide should use one presentation format and classification scheme.

Works Cited

Mita, Aria Farah, et al. “Value Relevance of IFRS Adoption in ASEAN-5 Countries: Does Presentation Matters?.” Journal of Accounting and Investment 21.3 (2020): 570-579.

Mohsin, Muhammad, et al. “The evaluation of efficiency and value addition of IFRS endorsement towards earnings timeliness disclosure.” International Journal of Finance & Economics 26.2 (2021): 1793-1807.

Muhammad, Muna Jabbar, and Safwan Q. Abd Al Haleem. “The Impact of the Adoption of IAS.

One on Improving the Qualitative Characteristics Using Financial Indicators-An Applied study.” Journal of Economics and Administrative Sciences 26.120 (2020).

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Financial Statements Examination of Non-US Companies That Use IFRS

For use in both assignments, select three non-U.S. companies. (You can use the same companies for both assignments.) At least two of the companies selected must use IFRS. (All three of your companies may use IFRS or, if you like, one of the companies may use local country GAAP or US GAAP.) In addition to the three companies you select, you must obtain Apple’s financial reports for comparative purposes.
Note that this page is formatted properly for your report.

Assignment 1 – Financial Statements

The objectives of the assignment are to give you hands-on experience examining the financial statements of companies that use IFRS and to introduce IAS 1, Presentation of Financial Statements.

Obtain the most recent Form 20-Fs for three non-US companies. At least two of the companies must use IFRS. (You may obtain this from the company’s website (investor relations) or the SEC website (www.sec.gov).

Note, your report should be a minimum of two pages using Times New Roman 12-point font, 1.5 line spacing, maximum of 1-inch margins and paragraphs formatted with spacing of 0 Pt before and 6 Pt after)

1. For Assignment 1, prepare a type-written response addressing the following:
a. For each of your companies, identify what accounting standards the company uses (e.g., IFRS, local GAAP [name of country], U.S. GAAP)
b. For all of your companies that use either IFRS or U.S. GAAP, review the companies’ balance sheets to answer the following questions:
i. Comparing the IFRS balance sheets to the balance sheet for Apple, are the IFRS balance sheet classifications and presentation format the same as Apple’s U.S. GAAP balance sheet classifications? Explain and elaborate.
ii. If they are different, which presentation do you believe is better? Explain why.
iii. What does IFRS (IAS 1) require for a particular presentation format or order of items on the balance sheet? Does this requirement agree with your observations? Explain and elaborate.
iv. Comparing the IFRS balance sheets to one another, are the IFRS balance sheet classifications the same for each company? Explain and elaborate.
c. Do you believe that all companies worldwide should be required to have one presentation format and classification scheme for financial statements? Explain why or why not.