Novartis AG is a Swiss company that develops, manufactures, and markets pharmaceuticals and vaccines. As of January

Question:

Novartis AG is a Swiss company that develops, manufactures, and markets pharmaceuticals and vaccines. As of January 2005, European firms, including Novartis, were required to compile their financial reports in accordance with International Financial Reporting Standards (IFRS). In 2006, Novartis filed with the U.S. Securities and Exchange Commission a Form 20-F that, among other things, included a reconciliation of “net income from continuing operations under IFRS” to “net income under U.S. GAAP.” A copy of that reconciliation follows.

Required:

1. What is the magnitude (in $ millions) of the difference between IFRS net income and U.S. GAAP net income?

2. Which net income number would Novartis managers prefer to report to stakeholders? Why?

3. As an investor who is considering buying shares of a pharmaceutical company, how would your decision be influenced if a candidate company reported $7,019 million of net income rather than $5,264 million?

4. Why are Form 20-F reconciliations helpful to investors who plan to buy or sell shares of a foreign company traded on a U.S. stock exchange?

5. Why might Form 20-F reconciliations also be helpful to investors who plan to buy or sell shares of a foreign company traded on a foreign stock exchange?

Stakeholders
A person, group or organization that has interest or concern in an organization. Stakeholders can affect or be affected by the organization's actions, objectives and policies. Some examples of key stakeholders are creditors, directors, employees,...