Investigation of International Regulations on Financial Reporting
Investigation of International Regulations on Financial
Reporting
By: Melissa Schmidt & Rachael Vacca
BACC 9101 – Financial Accounting
Philippus Lodewikus Wessels
Wednesday December 5, 2012
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Investigation of International Regulations on Financial Reporting
The company Barilla Holding S.p.A is an Italian based company that sells both pasta and
sauce products to both businesses and consumers internationally and nationally. The foreign
assets that Barilla has are AAA rated government bonds in Germany, France, Holland and
Sweden that are close to maturity. The selling of the pasta and sauces internationally and the
selling of baked goods on the French market, Spain, and Russia. The accounting standards that
Barilla Holding S.p.A follows in the International Financial Reporting Standards (IFRS)
endorsed by the European Union
In the Balance sheet presented by Barilla Holding S.p.A they refer to it as a
consolidated balance sheet. The layout is pretty similar in the sense that they use the three main
categories of assets, liabilities and equity. They also break up both assets and liabilities into
current and non-current. There is a total balance of current assets, long term assets, current
liabilities, long term liabilities and equity provided in the statement. At the end of the balance
sheet, the total liabilities and equity are combined as they would in a balance sheet of GAAP
principles. If more information is required on the assets, liabilities and equity that are listed, there
are note numbers in which you can refer to the financial notes provided.
The terminology that is used is different from the Generally Accepted Accounting
Principles (GAAP), however they mean the same thing. Barilla refers to cash as “cash, bank and
postal accounts”. Accounts Receivable is referred to as trades’ receivable. Deferred income tax
assets are considered a non-current asset according to the IFRS however it is a current asset and
long term liability according to GAAP principles. Inventory is considered to be a current asset
for both GAAP AND IFRS standards. In the Barilla statement, property, plant, and equipment is
the same as property equipment in the GAAP principles and they are both considered to be a
long term asset. Trade and other receivables is the same as notes receivable and they are both
considered to be a long term asset.
In the Barilla balance sheet, they refer Accounts payable to trades payable. Deferred
income tax according to the IFRS is a long term liability however, in the GAAP it is considered
to be both current and long term liability. In the IFRS, “provisions for other liabilities and
changes” is referred to as other long term liabilities notes in the GAAP principles. Share capital
in the IFRS is the same as common shares in the GAAP principles. According to the IFRS, profit
for the year is equivalent to retained earnings in the GAAP principles. The currency used is euros
where in the Tim Horton’s Balance sheet all dollars are reported in Canadian dollars. The layout
is very similar to the GAAP balance sheet.
In the Income statement prepared by the IFRS principles, the layout is pretty similar to
the layout of the GAAP principle income statement. They refer income statement to a
consolidated income statement. Instead of breaking revenue up into separate categories, they list
it under one figure. The order of all headings is listed in the same format as the GAAP principles.
Both the income statement of the IFRS and GAAP principles have notes so that you can refer
back to it, if more information is needed. They both include cost of sales, operating expenses,
general and administrative expenses, income tax expense and total profits. In the income
statement of the IFRS, they refer income before taxes to profit before income taxes. All amounts
are reported in euros as oppose to Canadian dollars.
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Investigation of International Regulations on Financial Reporting
Reasons as to why there are differences and similarities between the IFRS principles and
GAAP principles are the IFRS has different names for the same categories that the GAAP uses.
For example, the IFRS refers income before taxes to profit before income tax. They use the same
format because both sets of principles are viewed worldwide.
The Italian company, Benetton Group, is a fashion apparel brand. The company was
created in 1965 by 4 siblings, Luciano, Gilberto, Carlo, and Guiliana Benetton. Today, Benetton
has over 6,500 stores in 120 countries all over the world. The companies’ headquarters is located
in Villa Minnelli, Ponzano, Italy. The group’s brands include: United Colours of Benetton,
Undercolours of Benetton, Sisley, and Playlife.
The Italian generally accepted accounting principles (GAAP) are based on a legal
framework, the Italian Civil Code. They refer to IFRS standards in the European Union.
Canadian companies on the other hand follow the U.S. GAAP. The principles of accounting are
the same for all companies in Italy regardless of the size. When Italian companies record assets
and liabilities and prepare the income statement, these principles apply:
·
The historic cost and prudence principles
·
Assumption of the going concern basis
·
Use of accruals and matching concepts
·
Generally prudent valuation of each asset item takes place on a cost basis
·
Provisions should be made for certain or probable future liabilities when the amount can
be reliably estimated
·
Opening balance, consistency between accounting periods and full disclosure of changes
in accounting policy
·
No offsetting is allowed
The Benetton Group’s income statement is called “Consolidated statement of income.”
The currency is shown in thousands of euros, while in Canadian companies such as Tim
Horton’s, it is shown in thousands of Canadian dollars. The layout of the IFRS’ income
statement is similar to that of the U.S. GAAP. IFRS and U.S. GAAP categorize most of the basic
sales and expenses under different sub-headings. The Canadian company lists sales under
revenue, while the Italian company lists “sales commissions” under the gross operating profit. As
well, Benetton uses cost of sales as its own heading with sub-categories while Tim Horton’s
places “cost of sales” under costs and expenses. The Italian company does not list their specific
revenues. It only states the amount of revenue made in 2011 and 2012. The two income
statements state the same data but in a different order as well.
The companies use similar terminologies in the income statements. Both companies list
the basic terminologies such as revenues, operating income, operating expenses, and shares.
Basically, all terminologies in both income statements are the same.
The Benetton Group refers to the balance sheet as the “consolidated balance sheet.” It
lists the assets, liabilities, and shareholder’s equity as does the balance sheets in the Generally
Accepted Accounting Principles (GAAP).” The layout of the assets in Benetton’s balance sheet
lists the non-current assets before the current assets. While in the GAAP, current assets come
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Investigation of International Regulations on Financial Reporting
first. The same goes for current and non-current liabilities. Other than this, the layouts of both
balance sheets are similar.
The Italian company has a more detailed list of the current and non-current assets. Tim
Hortons only lists their current assets and then states the non-current assets but not as a heading
on its own. The Benetton Group has two separate headings of current and non-current assets. The
Italian company also lists their intangible assets while the Canadian company does not. Some of
the IFRS terminologies are different from the GAAP terminologies. But there are some
similarities between the terminologies. For example, both companies list inventories, cash,
deferred income taxes, property, equipment and investments. Although, the Canadian company
lists deferred income taxes under current and non-current assets while the Italian company only
lists it under non-current assets. The differences in terminology include the GAAP accounts
receivables and payables being referred to as trade receivables and payables in the IFRS
concepts. Notes receivables for the Canadian company is listed under current assets while the
IFRS refers to this as long-term financial receivables under non-current assets. Benetton Group
also uses financial receivables under current assets. The Canadian company also lists the
restricted cash and investments while the Italian company does not.
The shareholder’s equity and liabilities part of the balance sheet is similar from IFRS and
GAAP’s layout. The generally accepted accounting principles list liabilities before equity while
IFRS lists equity first. In both balance sheets, current and non-current liabilities are listed but the
IFRS lists non-current first. Also, the Canadian company refers to non-current liabilities as longterm obligations. The liabilities in GAAP and IFRS standards list different liabilities. Benetton
Group refers to share capital and treasury shares while Tim Horton’s refers to common shares.
Basically most of the terminologies and layout is similar to that of GAAP and IFRS standards.
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