Financial Report

Week 8 workshop presentation

Introduction:

In the previous 7 weeks, we completed the analysis of development factors, Hofsted’s cultural dimensions and Grey’s accounting values of some countries which are the representation in each country group. In addition, we also learnt the links between these three categories and the difference between PRE & POST IFRS. Based on these knowledge, we can find some dangers or limitations of a listed company after we analyze their annual report. And then, give some possible remedies to solve these limitations.

Q1

Three key steps to financial statement analysis

1. International business strategy analyze

In step 1, we need to analyze the economic environment of the country

[pic 1]

Source: Kurtzman, J., & Yago, G. (2009). Opacity index 2009: Measuring globe risks. Milken Institute

As we know, Bilfinger Ltd is a German construction-based listed company. Therefore, foreign investors need to analyze German economic environment first.

In week 5, we learnt that the major financial source of Germany is controlled by government, which is the main reason that will influence German cultural dimensions and accounting values. According to Hellmann, Perera and Patel (2010), the financial reporting practices are created and enforced by German government. And accounting regulation in German is part of commercial law. Therefore, the rules of accounting in Germany are set by government. Although the overall index of opacity in Germany is 17, government still dominates accounting values in Germany.

Because of these reasons, the first key limitation of international financial statement analysis in Germany is strongly government control, which leads to German accounting values are statutory control, uniformity, conservatism and secrecy.

1. Conduct an analysis of a firm’s financial reporting policies and practices

Through the analysis of Bilfinger’s annual report, especially the consolidated financial statements, it is clear that Bilfinger only apply part standards of IFRS10, 11 & 12 which are modified by the European Union. Therefore, the second limitation of analyzing foreign statements is Germany companies use modify version of IFRS. “IFRS-based financial statements can only be comparable if there is an enforcement system that ensures the correct, complete and equal application of IFRS.” (Hellmann, Perera and Patel, 2010) However, German listed only need to apply the modified versions which are altered by European Union. In other part of their financial statements, they still use German GAAP.

1. Conduct a financial analysis

Based on our previous study, German firm’s tax is based on their profit. Therefore, in order to reduce their tax expense, it is possible that German accountants artificially reduce their companies’ interest. So the figure we see in Bilfinger’s annual report might understate. As a result, the third key limitation of analyzing foreign financial statements is data accessibility. Although Bilfinger provide data of their interest, the veracity cannot be guaranteed. In addition, because of the accounting values in Germany are statutory control and secrecy, Bilfinger not provides the whole disclosure notes in their annual report even though they applied IFRS.

Doupnik, T.S., & Perera, H. (2015). International Accounting (4thed.). New York, NY: McGraw Hill

Kurtzman, J., & Yago, G. (2009). Opacity index 2009: Measuring globe risks. Milken Institute

Bilfinger Ltd, Annual Report (2014)

Hellmann, A., Perera, H., & Patel,C. (2010). Contextual issues of the convergence of international financial reporting standards: The German case. Advances in Accounting, Retrieved from www.elsevier.com/locate/adiac

Taylor, S. (2015). AYN424 International Accounting: The analysis of international foreign financial statements [Lecture Notes], Retrieved from https://blackboard.qut.edu.au/webapps/blackboard/content/listContent.jsp?course_id=_117176_1&content_id=_5764203_1