Financial Reporting: A Comprehensive Analysis of Nestle's GAAP vs. IFRS

Introduction

Financial reporting is an important aspect in both organizations and the market as financial reporting helps investors to understand the financial dynamics and projections of the company. In the US markets, there are two major reporting authorities: Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS); therefore, companies have the liberty to use one of the strategies. This analysis focuses on annual review reports and public filings of Nestle to help understand multinational cooperation's financial reporting options and how they influence various market dynamics. The analysis also focusses on the environmental aspects that may influence the reporting method selected by multinational cooperation.

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I.

The international financial analysis allows company information to be compared to industries all over the globe and over time. However, this information can be disadvantageous over time as it can contain bias information. The negative aspects include no generally recommended values for all business indicators. Thirdly, there exist problems with deducting the information as the information is not necessarily valid in every industry (Doupnik, Finn, Gotti & Perera, 2019). Finally, there are problems with comparison as data on sectoral and national averages are not available for comparison in the same investment entity over time.

A comparison of a company operating in the United States and other companies globally is a significant aspect of concern. This is based on the differences in accounting reporting and the legal and political aspects that surround the industry. Problems that exist in this comparison concern elements of valuation and market capitalization. The major issues include ratio comparison due to the respective differences in industries and market dynamics that influence the price of shares. These differences make it hard to quantify share strength on the stock exchange. On the other hand, there are significant problems with inventory valuation due to the differences in profitability strategies used by these companies.

Technical analysis can be considered the best analysis method to be used by investors because of the good information it provides. The Nestle cooperation can use the technical analysis method for the important information it provides on the market information that surrounds the share prices presented by fundamental analysis (Doupnik, Finn, Gotti & Perera, 2019). In this case, this analysis method is recommended for its significance in explaining the market dynamics and allow investors to make well-reasoned decisions based on current and future trends. The technical analysis method also focuses on the fundamental attributes surrounding trends.

The IFRS is the globally recognized financial reporting system and has more room for comparability. On the other hand, the US GAAP is customized for the US markets. Hence it lacks and has more financial reporting standards to the benefit of the enterprise. Harmonizing the reporting standards with information in the international scene will prove to be important in increasing investor confidence in companies (Doupnik, Finn, Gotti & Perera, 2019). Investors will enjoy the benefit of understanding important information like industry projections and market analysis information. This will allow investors to make more detailed and informed decisions on investment and the stability and potential of an investment opportunity.

II.

Environmental aspects have a significant influence on the organization's policymaking and the standards the company chooses to adopt. Governments offer facilitation and regulation roles in trade to comply with laws and avoid unhealthy competition. Therefore businesses have no or less control over the environmental aspects that influence the company. Hence, the company can only adopt the accounting standards recommended by the region's legal system. The Nestle trades at SIX Swiss Exchange, where it has a dedicated section. The legally selected shares amount to 2'881'000'000, with the nominal value of CHF 0.10 each (Holzer & Schoenfeld, 2019). The symbol of the Nestle share is NESN. Historically, the secondary trading institution is in the United States of America with the symbol Nestlé ADR is NSRGY and can be traded through licensed stockbrokers globally. In this case, the company stocks are traded under Swiss law.

Legal systems have a significant influence on the security of investment; hence the Swiss law can be considered sustainable for the organization. Generally, Switzerland is best known for its lenient laws on business; hence businesses are encouraged to invest in Switzerland. In addition, the Swiss law has fewer information demands on the cooperation's hence the business environment can generally be described to be stable for investment. In this case, investing in Nestle can be encouraged due to the safe, legal system in which it operates.

Finally, it is important to understand the role of the political and economic aspects of accounting standards adopted by the organization. Combined, political and economic conditions define the stability level of a country. Hence they are important aspects of the external business environment. In the case of Nestle, the Swiss legal system allows for less accounting standards for organizations hence significantly reducing the financial information the company can release (Holzer & Schoenfeld, 2019). The Nestle Company enjoys significant market flexibility by using the International Financial Reporting Standards (IFRS) as the Swiss legal system recommends for this as the standard reporting.

References

Doupnik, T., Finn, M., Gotti, G., & Perera, H. (2019). International Accounting (5th ed.). New York, New York: McGraw-Hill Education.

Holzer, H. P., & Schoenfeld, H. M. (Eds.). (2019). Managerial accounting and analysis in multinational enterprises. Walter de Gruyter GmbH & Co KG.

Investors. (n.d.). Retrieved from https://www.nestle.com/investors

Shares & ADRs. (n.d.). Retrieved from https://www.nestle.com/investors/sharesadrsbonds

Mahalakshmi, V., & Karthiga, M. S. (2020). Financial Performance of Nestle India Limited. Studies in Indian Place Names, 40(19), 1-9.