Issue:
1a) Are the disclosures in the Swiss annual report really unnecessary?
1b) what social, economic, and institutional factors in Switzerland Might be causing the inclusion of these disclosures?
1c) Describe on of the differences in financial reporting between a Swiss company and the reporting in another country?
Facts:
Rob Carpenter senior manager at a prestigious accounting firm, recently transferred to the international division of acquisition and mergers. Mr. Carpenter was recently asked to make a recommendation regarding Nestle. Mr. Carpenter unfamiliar with the accounting in Switzerland has realized substantial differences between Swiss and U.S. accounting standards. Surprisingly, there are many “unnecessary” details in Nestle’s annual report including things such as social, environmental and employee disclosures. Furthermore, he notices differences in the financial statements. Mr. Carpenter is in charge of resolving the reports.
Analysis:
Multiple aspects of accounting and financial reporting affect the international community in different forms particularly in respect to needs of their prospective capital markets. The United States and Canada are equity-oriented markets, in these countries any individual is allowed to invest in the companies. The reports are typically a “public relations document that will present a positive image of the company” (Saudagaran, 2009). This may be a frowned upon practice by some parties but nonetheless its aim is to create marketability to attract the investor. As a result, investors may be more likely to commit their capital to a company that forecasts a favorable profit expectation in the future. The logic that follows this form of investment behavior is that “capital markets can and do punish companies that report disappointing performance” (Saudagaran, 2009). Ultimately, the validity of the financial