Question

Referring to their most recent annual reports, access the financial statements of a foreign company and a domestic company with which you are familiar to complete this assignment.

A. Determine the GAAP the foreign and domestic companies use to prepare financial statements.

b. Determine whether the financial statements provided by the foreign and domestic companies include the same components

c. list any format differences in the companies' income statement

d. list any format differences in the companies' balance sheet

e. Note any terminology differences that exist between the two companies income statement and balance sheet

f. In very general terms, asses whether the scope and content of the information provided in the notes to the financial statements is similar between the two companies

g. provide your overall impression of how the two companies' set of financial statements compare

Answer 1

Analysis of Foreign and Domestic Financial Statements

Generally Accepted Accounting Principles (GAAP) refers a common set of accounting standards, principles and procedures that firms are expected to follow when compiling their financial statements (Weygandt et al, 2015). It is basically a combination of certain authoritative standards, which have been set by financial statements and are usually, accepted ways of reporting and recording accounting information. GAAP is meant to improve the clarity of the company’s communication of its financial information. This paper compares GAAP of a domestic company (American firm), Bharat Heavy Electricals Ltd. Company and a foreign company, Caterpillar Inc.

Income Statement

For caterpillar Inc., the income statement is a presentation of the financial results of the firm’s business undertaking over a given period of time. Income statement communicates the amount of revenue generated by the company during a period of time and the cost that was incurred in relation to generating that revenue. The income statement features gross margin, operating profit, other income (expenses), and profit loss of consolidate companies, profit/loss of a consolidated and affiliated firms and profit/loss of consolidated firms. This is actually the structure of Caterpillar Inc.’s income statement (CAT Income Statement, 2017).

The gross margin features components like revenues for financial products, research and development expenses, interest expenses of financial products, selling, general and administrative expenses, interest expenses of financial products, other operating expenses, and goodwill impairment will. Under operating profit, we have revenues for financial products, investments and interest income foreign exchange gains, interest expense excluding financial products, miscellaneous income/loss, foreign exchange gains/ losses and licenses fee income and gains on sale of securities and affiliated companies.

For Bharat Heavy Electricals Ltd, the income statement encompasses revenues, revenue cost, gross profit, operating expenses, sales and general administration, other operating expenses which culminates to total operating expenses. The next category features operating income, other income, expenses, income before taxation, and provision for income taxes and net income from ongoing operations. Lastly, there are net income, net income available to common shareholders, basic and diluted earnings per share and basic and diluted weighted average share outstanding.

The accounting principles of Bharat Heavy Electricals Ltd. Company are quite different. It features, estimates, fixed assets, leases, intangible assets, borrowing cost, depreciation, investment, validity valuation, revenue recognition, accounting for foreign currency transactions, translation of financial statements of integral foreign operations, employee benefits, claims by or against the company, provision for warranties, government, grants, tax on income, impairment and segment reporting. Baharat heavy electrical ltd financial statements have been prepared as of a continuous concern on accrual accounting methods and historical cost conventions in line with the generally accepted accounting principles and also provisions of the Companies Act 2013.

Balance Sheet

There are differences in the balance sheet Bharat Heavy Electricals Ltd and that for Caterpillar Inc. Company. For Bharat Heavy Electricals Ltd., the top of the balance sheet start with Equity and liabilities, followed by long-term borrowings, current liabilities, Assets, current assets and loan advances. The balance sheet for Caterpillar Inc. features four main categories, including current assets, long-term assets, current liabilities and stockholders’ equity. The Current Assets section for caterpillar Inc. features cash and cash equivalents, short-term investments, net receivables, inventory and other current assets, which all are added up to obtain total current assets while For Bharat Heavy Electricals Ltd, the assets are divided into current and non-current assets.

Total non-current assets is calculated from gross block, less accumulated depreciation, less impairment of assets, net block, lease adjustment account, capital work in progress, capital work in progress, capital work in progress, intangible assets under development, intangible assets under development, Pre-operative Expenses pending, Assets in transit, Non-Current Investments, Long Term Loans & Advances and other non-current assets. The asset section for the two companies is totally different.

At Bharat Heavy Electricals Ltd Fixed assets, apart from land that has been acquired from the state government from is usually carried at the cost of construction or acquisition or book values less any available accumulated depreciation and impairment. Usually, costs include internal transfer values duties carried out at the actual or estimated market price or factory cost, which are usually lower. Effects of extraordinary events like revelation/devaluation in line with the long-term or loans utilized for acquiring fixed assets is usually added to or reduced from the cost.  

This is not the case with fixed assets in the cases of Caterpillar Inc. which is a foreign firm. Effect of extraordinary events such as devaluation / revaluation in respect of long term liabilities loans utilized for acquisition of fixed assets is added to / reduced from the cost. The land that has been obtained from the government free of charge is usually valued at Re.1 unless it has been acquired after July 16th, 1969. In which the same is normally valued at the price of acquisition sated the concerned state government, by corresponding credit the capital reserve.