Exhibit 5-5 presents the limited restatement from Novartis Group's 2005 annual financial statement, reconciling net income and shareholders' equity from International Financial Reporting Standards (IFRS) to U.S. GAAP. Note 34 of the annual report further explains the details of the IFRS/U.S.GAAP differences in the reconciliation.
1. Identify the three IFRS/U.S. GAAP accounting-principle differences that cause the largest differences in Novartis's 2005 net income prepared in conformance with the two sets of accounting principles. 2. Go to the Novartis Web site (www.novartis.com) and locate Note 34 in the 2005 annual report. For each of the three accounting-principle differences identified in requirement 1, discuss:
a. Treatment under IFRS
b. Treatment under U.S. GAAP
c. Effect of the accounting-principle difference on Novartis's net income in 2005 and 2004
d. evaluation of the two treatments (IFRS vs. U.S. GAAP).Which treatment do you believe provides more useful information?
3. Does Novartis's discussion of differences between IFRS and U.S. GAAP in Note 34 provide enough information for the financial statement reader to critically compare the two sets of accounting principles? Present an explanation for your response.
4. Assume that Novartis forecasts (IFRS based) net income of U.S. $6,300 million for the next year. Develop a forecast of Novartis's U.S. GAAP based net income using information provided in Note 34. How reliable is your U.S. GAAP-based forecast, and how might you use the forecast?