1.

1 INTRODUCTION

1.1.1 Company Background

Figure 1 shows the logo of Nestlé

Nestle is one of the thriving company and it become the largest food and beverages
manufacturer in the world. How can they be that successful? In Switzerland during 1867, the
founder of Nestlé which is Henri Nestlé created a product for consumption by infants who
cannot be breastfed and called it as Farine Lactée Henri Nestlé. Around this time he starts using
the now iconic „Nest‟ logo. In 1874, Nestle have produced its condensed milk product to cope
with Anglo-Swiss Condensed Milk Company, and during 1905, the company owned by Henri
Nestlé combined with Anglo-Swiss Milk Company forming the Nestlé Group.

Nestlé was officially listed in Bursa Malaysia Berhad on 13 December 1989. Their
tagline which is “Good Food, Good Life” shows that they contribute a quality of brands and
product for the healthier future and quality of life. That is how the Nestlé company helps the
society for their future life.

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 Table 1 shows some of the details about the Nestlé Manufacturing (Malaysia) Sdn. Bhd.

Elements Details
Name of the Company Nestlé Manufacturing (Malaysia) Sdn. Bhd.
Registered Address 22-1, 22nd Floor, Menara Surian, No. 1 Jalan PJU 7/3, Mutiara
Damansara 47810, Petaling Jaya, Selangor Malaysia.
Incorporation Date 30 November 1983
Financial Auditor KPMG (2011)
Honourable Achievement
 The Edge Billion Ringgit Club Corporate Awards 2016
 Asia Recruitment Awards 2016
 Kantar Worldpanel Most Chosen Brand Award
 Randstad Award 2016
 Malaysia‟s 100 Leading Graduate Employers Award 2016
 JobStreet.com‟s People‟s Choice Award 2016
 National Annual Corporate Report Awards 2016
 The Putra Brand Awards 2016
 MSWG – ASEAN Corporate Governance Transparency Index,
Findings & Recognition
 CSR Malaysia Award 2017
 The Edge Billion Ringgit Club Corporate Awards 2017

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1.1.2 Main Activity and Products

The main activity of Nestlé Manufacturing (Malaysia) is producing food and beverages
for Malaysian. Some of the brands that Nestlé‟s produced were Koko Krunch, Nescafe, Maggi,
Drumstick and Bliss. All this brands are officially known by everyone. Some of the Nestlé‟s
products are breakfast cereals, coffee, dairy, ready-to-drink, ice cream, confectionery and
chocolate.

Figure 2 shows some of Nestlé’s Brands

Figure 3 shows some of Nestlé’s Products

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1.1.3 Financial Highlights

Table 2 shows the Financial Highlights of Nestlé Manufacturing (Malaysia) Sdn. Bhd.

Elements Details
Earnings per share

Earnings Per Share (sen)

300
271.7
250 239.5 234.7 251.9
215.5
200
150 Earnings Per Share
100 (sen)

50
0
2012 2013 2014 2015 2016

Turnover

Turnover (RM million)

5,200
5,100 5,064
5,000
4,900 4,838
4,788 4,809
4,800
4,700 Turnover (RM
4,600 4,556 million)
4,500
4,400
4,300
2012 2013 2014 2015 2016

 Turnover for the financial year ended 31 December 2016 hit a

record high, increasing by 4.7% to cross the RM5 billion marks
for the first time.

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Net Profit

Net Profit (RM million)

700 637
591
600 562 550
505
500
400
Net Profit (RM
300
million)
200
100
0
2012 2013 2014 2015 2016

 Net Profit increased by 7.9% to RM637 million for the financial

year ended 31 December 2016.

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2.1 ACCOUNTING INFORMATION

2.1.1 Introduction

Accounting information is the information about the financial position and it could tell
the users about the company performance. The changes of the financial position will be use by
the users to make decisions that have economic result. Accounting information will helps the
users by showing where does the money have been spent and how do the money contribute to the
company by sales or investment. It also designated the financial implications of choosing one
plan instead of others. The accounting information also helps the managers especially to make a
decision on future planning because his decisions will affect the whole company.

2.1.2 Qualitative Characteristics of Accounting Information

Qualitative characteristics are the attributes that make the information provided in the
financial statements useful to users, (Riahi-Belkaoui, 2004). According to Norby (1998), for
financial reporting development, they have provided the qualitative characteristics of accounting
information in the conceptual framework.

Relevant Reliability Objectivity Understandibility

Comparability Realism Consistency Timeliness

Economy of
Completeness
Presentation

Figure 4 shows the Qualitative Characteristics of Accounting Information according to

Wood (2005)

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 One of the absolutely necessary qualities of the accounting information is
understandability. The information stated in the financial statements should be understand by
the users. “We believe this revised presentation will provide users of our financial statements
with a better understanding of our business” (Imperial Tobacco, Annual Report and Accounts
2007). From the past research, it clearly shown that the financial statements should be presented
in easy-to-understand forms so that the users will easily understand and be informed about the
business. Besides, the users should possess a rational knowledge about the economic activities
and they must have desire to study the information with reasonable application. It will be an
obstacle if the accounting information too complex because it will make the users unable to
continue the decision making part. For example, Enron Company has a something suspicious
where they wanted to hide the financial risk faced by the company so they provide the financial
statements that contained a complex structure. Because of the complex financial information, the
capital markets participants do not understand and misinterpret its value until the destruction of
the share price on 2001.

To be beneficial, information provided must be relevant for the use in decision making.
Does the financial information will give effect to the financial statements users‟ decision? If the
answer is yes, the financial information is relevant and can be included in the financial
statements. Financial information without relevant and faithful representation is not useful (H.
Bohušova, 2011). The relevance information will help the users to predict the future trend of
economic or business (predictive value) and conforming or correcting their past appraisal. For
example, the information about the value of the asset is whether the asset has a resale value or
not in the future or whether it can give any income in the future. From the information of the
asset, users can predict the capability of the company to act in the future. As we look to the other
type example, if the company faced the loss just because of the small incident where there is a
person throw the brick to the factory windows and the investors (one of the users of financial
statements) still invest in the company. The information is not relevant because it does not affect
user‟s decisions.

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 For reaching extra valuable accounting information, the information should also be
reliable. Do you think the users trusts the information provided in the financial statements? If
no, that is mean that the information is not reliable and the financial information is totally useless
and cannot be use for the decision making. The information achieved its reliability when it is free
from misstatements and bias and can be rely on by users to regard the information faithfully
whether it is significance to be or it expected to be. Any material error or omissions in the
financial information will lessen the reliability of the financial statements and it could make the
users unsure with the financial reporting. In addition, the reliable information should have
verifiability, representational faithfulness and neutrality. For example, if the actual expenses of
the company are RM500, 000, but in the financial statements recorded as RM450, 000, it does
not represent the true events. So, the company should record the true costs so that the
information reliable and can be trust.

The last qualitative characteristic that will be highlight is comparability. Comparability

is related to consistency. That is why the financial statements provided should be on a time
period because it is enable the users to compare the performance of the company within a time. It
is very useful for the users to arrive to the conclusions about the trend of the business. In order
the financial information are able to be compare, the company should use the same accounting
policies or method within a time period. Comparability can be apply within two types of
company that have a same accounting policies or a company that have a same method of
accounting treatment such as depreciation of asset. For example, within a year this two
companies use the same accounting policy for depreciation on asset which is straight line method
so because of that, the two companies can be compare and the information about the asset is
comparability because they are using the same accounting policies.

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3.1 RELEVANT INFORMATION IN NESTLÉ MANUFACTURING (MALAYSIA) SDN.
BHD.

Relevant is one of the qualitative characteristics of accounting information that is very

essential for the users to make decisions making. Relevant information gives a huge impact for
the company because it involves the evaluation of the past, present or future event and
confirmation or correcting the past events. Mostly the past information will be used for the
planning and prediction of the future financial position and performance.

In both year 2015 and 2016, financial statements disclosure of Nestlé have mention about
the accumulated impairment loss that occurred on their property, plant and equipment. At 1
January 2015, there is no impairment loss occurred so the total of accumulated impairment loss
of 2015 that brought forward from last year was RM21, 113, 000. For the year of 2016, the
impairment loss occurred was RM4, 847, 000 and this will increase the accumulated of
impairment loss in the financial statements. The company adds the information of the
impairment of loss in their financial position even though it is the increase of loss. This
information should be included in the financial position and it is relevant because it will give
effect to the investment community, because they want to see how the company performs in
managing their assets within the increasing of the impairment loss.

The financial statements disclosures concerning the cash flow being generated from
continuing of the operation of the ice-cream business. This information is relevant because it
shows the outcome of the planned operations. The amortization of the intangible assets
(goodwill) shows the increase from RM275, 000 to RM414, 000. The increase of the
amortization gives effect to the operating profit before changes of capital. The goodwill is related
to the ice-cream‟s business and the ice-cream business‟s revenue is expected to increase 6% to
10% per annum. As stated in the notes of financial statements of Nestlé, cash flows were
projected based on actual operating results and financial budgets approved by management
covering a 3-year business plan. The information of increase or decrease in the statements of
cash flow is very relevant it may help the management to observe their past evaluations and
predict the outcome of the business in the future.

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 The information of the inventories has been stated in the financial statements disclosure
where it is measure at the lower cost and net realizable value. In year 2016, Nestlé was using a
first-in first-out (FIFO) method in maintaining the level or inventory while in year 2016, they are
using weighted average method. The inventories increase form RM414, 262, 000 to RM 455,
337, 000. This information is so relevant where it will affecting the expenses incurred in
purchasing the new inventories and other cost related in carrying the inventories to their location.
The cost related to the inventories from it has been purchased until it is sold and the income is
realizable is important to be recorded because all the information is relevant to show how the
inventories contributes to the sales of the company. From that information, Nestlé also can
determine which type of method gives the better result of inventories management and what
changes can be done to lower the cost of inventories.

Investors will always check on the earnings per share that they will receive at the end of
the time period. Nestlé company disclose the increase of the earnings per share (sen) in the
financial statements from RM251.91 to RM271.70 and this information is so relevant to the
invertors because its shows that the company able to give them returns over their investments.
The investors also can predict the future trend of the earnings per share of Nestlé Manufacturing
(Malaysia) Sdn. Bhd. The increase in the earnings per share shows that the Nestlé has a potential
in gaining the profit of the company in the future. This potential can attract more investors to
invest in Nestlé. The investment will be used as a fund for a project. The more funds that
company received, the profitable project the company will receive and it will give the high profit
as return. All this information is so relevant to the investors for them to decide whether they
should increase their investments, maintain or sell their investments.

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4.1 COMPARABILITY INFORMATION IN NESTLÉ MANUFACTURING
(MALAYSIA) SDN. BHD.

Comparability is related to the consistency so it will involve one accounting year or same
accounting principle is to treat the events in the company. The characteristics of comparability is
important for the users to compare the performance of the company over a year or comparing
one company to another company that using same accounting principle.

Nestlé Manufacturing Sdn. Bhd. is using the same basis of preparation of the financial
statements for the year of 2015 and 2016. Overall financial statements have been prepared in
accordance with Malaysian Financial Reporting Standards (MFRSs), International Financial
Reporting Standards (IFRS) and the requirements of the Companies Act, 1965 in Malaysia. The
result of both financial statements can be compare because they are using the same basis of
preparation of the financial statements. The users can observe the overall financial statements
and position of the Nestlé company whether they have grew up or decline in the business. The
users need to know how important of making comparison between the events or conditions in the
company so that they can analyze the performance of the company.

The financial statements that have been disclosure usually will be recorded between two
years, the current year and the prior year which is mean that there are current year figures and
prior year figures. In the financial statements of Nestlé for the year 2016, the statements of
financial positions have been recorded for two years which is year 2015 and 2016. It is actually
for the internal and external users to compare the performance of the company between these
two years. The users may look for the similarities or differences happen in the events between
the years. The company also mentions the accounting standard in the notes to the financial
statements for the users to compare whether there is a change on consistency of accounting
policies of the company. For a future financial period, the equivalent information should be
disclosed do that the users are able to compare it over a period.

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 Nestlé has using the same accounting policies for their depreciation of property, plant and
equipment which is straight-line basis over the estimated useful lives. The users will able to
compare the performance of the property, plant and equipment over a period of time because the
depreciation method is the same. As there is an addition of the assets into the company, there is
always an increase of the depreciation of the assets. In year 2015, there is an addition of building
RM20, 028, 000 and the depreciation of buildings for the year is RM10, 117, 000 while there is
an increase of depreciation of buildings in year 2016 amounted RM14, 250, 000 because of
another addition of buildings. The amount of depreciation of building for Nestlé can be
compared within these two years because the company is using the same accounting policies.

The accounting principle that applied by the company of Nestlé on their inventory
management is different between these two years. For the year of 2015, inventories are being
measured by using first-in first-out (FIFO) method while in year 2016 weighted average method.
Within these two years, the inventories cannot be compared on their application of the
accounting policies but it can be compared by the time period. The inventories for the year 2015
will be compared from month to month within its time period by using FIFO method to know
whether their management on inventories is good or not. In year 2016, the in and out of the
inventories of the company will be treated by using weighted average method. Between the years
of 2015 and 2016, Nestlé actually can observe which method is more effective to be
implemented on inventory management.

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SUMMARY

All the companies that listed in Bursa Malaysia are the big companies and they have a
good performance in most of the years. One of the companies that listed in Bursa Malaysia is
Nestlé Manufacturing (Malaysia) Sdn. Bhd. By looking at their annual report, this company has
a good performance and the entire products that produce by the Nestlé have received a good
response from Malaysian. One of the objectives of Nestlé is to build mutual trust with consumers
so they come with a lot of new ideas to consume the Malaysian with their products.

The financial statements of Nestlé are very useful to the users because the accounting
information in the statements have qualitative characteristics that make the company have a good
performance from year to year. The qualitative characteristics are relevant, reliable, objectivity,
understandability, comparability, realism, consistency, timeliness, economy of presentation and
timeliness. Among these characteristics, there are four essential quality that should be
highlighted which is understandability, relevant, reliability and comparability. All the qualitative
characteristics will determine how good the accounting information is.

According to the financial statements for the year 2015 and 2016, there is a lot of relevant
and comparability of accounting information that can be assess and compare within that two
years. From the assessment, it can be found that all the accounting information are useful to the
users because from the information, the users are able to make a decision making and they able
to analyze the performance of the company. The users should be able to recognize the
similarities of differences that occur in following events.

The company should focus on the qualitative characteristics of accounting information

because it gives a huge impact to the financial statements. Accounting information must fulfill
the criteria that have been stated. All the users will be depended on the annual report of the
company to evaluate the company‟s performance. Because of that, the users need to have a
knowledge on the business or economics activities so that it will be more easier for them to
evaluate the company.

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REFERENCES

1. Internet Sources
http://www.bursamalaysia.com/market/

http://accounting-simplified.com/financial-accounting/accounting-concepts-and-
principles/comparability.html

http://accounting-simplified.com/financial-accounting/accounting-concepts-and-
principles/accounting-relevance.html

http://smallbusiness.chron.com/qualitative-characteristics-accounting-information-3952.html
https://www.nestle.com.my/

2. Books
Dr. Syaiful Baharee Jaafar el al. (2016). OFPS Financial Accounting 3 & 4 Second Edition.
Oxford Fajar Sdn. Bhd.

3. Journal / Article
Riahi-Belkaoui (2004). Accounting Theory

William C Norby (1982). The financial analysis journal. March-April. p.22

H. Bohušova (2011). General aaproach to the IFRS and US GAAP convergence. Acta univ.
agric. et silvic. Mendel. Brun., 2011, LIX, No. 4, pp. 27–36

M Hasan (2014). Qualitative Characteristics of Financial Reporting

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This assignment contains 2,994 words excluding references.

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