Question

BYP11.2 McCain Foods Limited is a large multinational private company with $8.5 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 in 18 countries, sales operations in over 160 countries, and employs more than 20,000 people. Most private companies in Canada have chosen to follow ASPE; however, some private companies like McCain have chosen to follow IFRS. “We believe that we are exactly the type of company for whom IFRS was developed,” McCain told the IASB in a letter of comment responding to the IASB's preliminary views on financial statement presentation.

Instructions

a. Other than the owners of McCain, who might be the users of McCain's financial statements?

b. McCain has numerous subsidiaries located throughout the globe. How would this type of multinational structure motivate McCain to follow IFRS?

c. What are the benefits to the users of its financial statements of McCain reporting under IFRS?

Answer 1

a) User's of McCain's Financial Statements

Other than the owners of McCain, the financial statements of McCain is used by the following users

1) Investors or the shareholders who invests in the company by evaluating the net income based to know about their earnings and to decide whether to invest in the company or not

2) Suppliers uses the financial reporting of the company to decide whether to continue the business with the company

3) Lenders to know about the credit worthiness of the company uses the financial statements

4) Competitors want to know about the financial status of the company to maintain the competitive edge.

5) Government will evaluate the financial statements to know abut the taxes paid and the provisions

6) Employees of the company also review the financial statements to know about their bonus.

b) McCain to follow IFRS

McCain, being a multinational company producing frozen and non frozen food all over the world adopts IFRS because it provides transparency, accountability and efficiency. As it has manufacturing operations across the world, it can use the same accounting policies and principles for all the operations which provides transparency to compare the financial information across the operations.It provides the information gap between the investors and the company. by using the IFRS the company can reduce the cost of capital and international reporting costs.It also provides McCain more growth opportunity, more leveraged, issue external capital issuing bonds across the countries. This motivates McCain to follow IFRS

c) Benefits to the users of financial statements of McCain reporting under IFRS

The benefits for the users of the financial statements are as follows

1) Easy Understanding: Companies reporting under IFRS adhere to the principles which are same for all the companies. So, the users can easily understand the financial statements if knows the principles used by one company, as the principles will be same for the other companies

2) Comparability: The users can easily compare the financial statements data and financial ratios of the different companies which are available over the internet and can do decision making

3) Presentation of financial Statements: The global companies reporting under the IFRS prepares the financial statements in the same format which helps the individuals to understand and compares the financial statements of different operations of the same company.

4) Investment opportunities: It helps the investors to know the better investment opportunities by evaluating the financial statements prepared under IFRS where the accounting principles are same for all the companies