In: Accounting
Navjot Foods Limited is a large multinational private company generating in excess of $7 billion in sales. It produces both frozen and non-frozen food products and makes one third of the frozen French fries produced worldwide. It has manufacturing operations on six continents, sales operations in over 160 countries, and employs more than 17,000 people Most private companies choose to use ASPE. However, some private companies like Navjot have adopted IFRS. Because the company is so large, it treats itself for reporting purposes like a public company
Instructions (a) Navjot has numerous subsidiaries located throughout the globe. How would this type of multinational structure motivate Navjot to choose IFRS?
(b) Why would users of Navjot's financial statements want those prepared using IFRS? Try to relate the usersneeds to the four qualitative characteristics of accounting information relevance, faithful representation comparability and understandability
(c) It is often assumed that only large private companies would choose to adopt IFRS and small companies would avoid IFRS. do you think that is? Can you think of reasons why a small private company would want to adopt IFRS?
a) In the question it was mentioned that NAVJOT FOODS LIMITED is a multinational PVT.COMPANY performing its operations in six continents.Because IFRS create a single set of accounting standards through out world it will help NAVJOT FOODS LIMITED to maintain same accounting standards for all instead of using different accounting standards based on preference of each country. IFRS reduces the time,effort, and expense for providing financial reports. IFRS makes easier for NAVJOT to monitor its branches or subsidiaries that are located in different continents or countries
b)The users of NAVJOT financial statements will obtain related information as IFRS maintains relative information of the company in simple manner.AS IFRS has strict guidelines for preparation of financial statements the end reports have faithful Represention.Since all the companies follow same guidelines of IFRS the end user can easy compare the performance of the company in the industry.As the Financial statements are prepared in a organised manner so that they can be understanble by end uses.
c) Every coins has two sides ..like wise IFRS too has some disadvantages. The cost for preparation of financial statements will be very high which can't be borne by small Pvt maintaining financial information as per IFRS guidelines would increase the amount of work space for accountants.As all these reasons discourage a small Pvt company to maintain its financial information under IFRS GUIDELINES.