LOVELY PROFESSIONAL UNIVERSITY

Mittal school of Business

Name of the faculty member: Mrs. Meena Verma

Course Code: ACC308 Course Title: International financial

reporting and accounting
Academic Task No: 1 Academic Task Title: Online assignment
Date of Allotment: 11th Sept.2022 Date of Submission: 17/09/2022
Student Roll No: RQ2107A31 Student Reg. No:12103667
Term: 121223 Section: Q2107
Max. Marks: Marks. Obtained:
Evaluation Parameters

Learning outcome: I was clearly able to understand the benefits of using IFRS.

Declaration:

I declare that this Assignment is my individual work. I have not copied it from any
other students’ work or from any other source except where due acknowledgement
is made explicitly in the text, nor has any part been written for me by any other
person.

Student signature:

Evaluation Criterion: Rubrics on different parameters

Evaluator’s Comments (For Instructor’s use only)

General Observations Suggestions for Best part of assignment

Improvement

Evaluator’s Signature and Date:

 FONTERRA CASE STUDY

Question 1- How did IFRS result in better communication in financial reporting?

Answer: The implementation of IFRS has resulted in better communication in financial

reporting in the following ways:

1. By identifying what information is relevant:

There are a lot of unnecessary details in financial reports of a company that is not
relevant in the perspective of an investor and consumes a lot of time to go through
everything. IFRS requires only relevant data to be published in financial reports.

2. Prioritising the relevant data:

Now that the relevant data has been picked up, it is important to prioritize them over the
additional and unnecessary data. They should be orderly placed in a manner that when
someone goes through the financial reports, the relevant and more important data should
appear first and the additional information later.

3. Presenting data in a clear and simple manner:

Financial reports contain a bit technical data that sometimes only people well versed with
financial reporting can understand. Sometimes investors and other users of financial
reports find it difficult to read and comprehend that data because of its technicality.
Hence IFRS requires that the data presented should be simple, clear and precise so that
anyone can understand it.

These small improvements have proven to improve the quality of financial reporting for
various entities.

Question 2-How has Fonterra Co. used IFRS to improve the communication of information
in financial statements?

Answer:

Fonterra began the process of improving information communication in its financial statements
in early 2015.
With the support of senior management, the company formed an internal review team comprised
of staff members from the accounting and investor relations teams. The team held a workshop
with the company's auditors to identify and determine the information needs of various
stakeholders and secondly, to communicate the information in a way that ensures stakeholders
understand Fonterra's story. The following changes were made:

1) Restructuring the notes:

The team determined which key themes were most important and relevant to stakeholders
in order to improve the way the company communicated information in its financial
statements. Using these themes, the team reorganised disclosures and categorised related
notes into the following sections: 'Performance,' 'Debt and equity,' 'Working capital,'
'Long-term assets,' 'Investments,' 'Financial risk management,' and 'Other.'

Figure 1: Restructured notes.

2) Providing important and relevant information in a concise and clear manner:

 • The company made many of changes to highlight important points and
communicate them clearly and concisely. The descriptions of major accounting
policies, judgments, and estimates have been moved to the related notes. This has
resulted in improved the clarity of each note.

Figure 2: ‘Cost of goods sold’ from the 2013 and 2016 financial statements.

• It has less technical and formal descriptions which makes it easier to read and
interpret. The company has rechecked the notes to see which information seems
relevant and which doesn’t. As a result, the level of detail was reduced. When
determining whether information was material and should be retained in its
financial statements or not, the company considered both qualitative and
quantitative factors. The length of this note was reduced by focusing on
information that investors value, such as events that trigger consolidation or
equity accounting. Besides that, information about general consolidation
procedures was removed, and information about equity-accounted investments
was moved to a new location the relevant note.
Figure 3: Basis of consolidation.

• The team combined information from previously displayed notes so that it

can display related information more clearly.
Figure 4: Merged information.

• It also made the content more investor friendly. To assist investors in

understanding the company's financial statements, the team provided facts and
explanations. The team provided information and explanations to help investors
understand the company’s financial statements.
 Figure 5: Notes in easily understandable form.

Question 3- What are the triggers of change in case of Fonterra Co.?

Answer: For the fiscal year ended 31 July 2015, the company released its first redesigned
financial statements in compliance with the IFRS and the following triggered the company to do
so; Fonterra made the decision to review the clarity of its financial statements in response to
work on effective communication led by international and national organisations such as
standard-setters, accounting firms, and regulators, as well as changes made by other New
Zealand and international companies. The company wanted to make its financial statements in
compliance with the standards set by international and national organizations. It would lead to
uniformity in the presentation of financial statements and would be easier for investors to read
and understand.

Question 4- What are the key benefits, reactions, and challenges faced by Fonterra Co.
while implementing IFRS?

Answer: The most significant benefit that Fonterra observed after having redesigned the
financial statements in accordance with the IFRS is that it made the financial statements easier to
read and understand and thus improved the overall communication process. Initially the
company faced problems while redesigning the financial statements as it was not sure of what to
tackle first but eventually the process got easier as then began. Few of the other challenges
included deciding who should be involved in the team organized for redesigning the reports,
what disclosure requirements wee to be fulfilled according to IFRS and what immaterial
information was to be removed from the financial statement so that only relevant and concise
information stays. This includes deciding what information is relevant, deleting unnecessary
data, reducing lengthy information, and merging some information to make it more meaningful.
Question 5- What are the areas of success and lessons learnt by Fonterra Co.?

Answer: The fist step the company took was to get by-in from the senior management, ie,
acceptance of and willingness to actively support and participate in redesigning financial reports
according to IFRS. This is the most appropriate action any company would think of before
starting any work. Then the company got in the correct mix of both internal and external
stakeholder groups who were to be the representatives the in entire process. This led to the
success of the company in redesigning the financial reports. The lessons learnt by the company
were that the discussion should be realistic and focussed and there is a need to acknowledge the
fact that there is no single method for preparing financial reports. Also, setting up a timeline is
very important.