International Accounting

Table of Contents

Introduction.

The selection of the countries.

IFRS Adoption.

Background.

Purpose.

Scope.

Discussion.

The Indian Case.

The French Case.

The Chinese Case.

The selection of optimum industry: Pharmaceutical

Discussion.

The Indian Case.

The French Case.

The Chinese Case.

Recommendation.

Introduction to Indian Pharmaceuticals Industry Analysis

The Selection of The Countries

The three nations that have been selected considering all global options are fully explored, taking into account three culturally different regions globally are as follows:-

  1. Anglo Saxon country: The Anglo Saxon country selected is one of the most successful Southeast Asian countries, India. It is a middle income group country but has shown robust growth consistently. The development of the country has been guided by the government of the country, and its economy is progressively opening and is moving forward fast towards innovation and technology.

As per the latest AT Kearney Confidence Index Report (2020), India has slipped from its previous ranking. As per the global consultancy firm’s report, India was ranked at 16th in the previous year 2019 out of the 25 countries. The rank was stronger in 2018 at 11th and stronger in 2017 and in 2016 index at 8th and 9th repectively that means the index ranking is decreasing year on year.

However, the main reason behind selecting India is due to the Corona Pandemic. China was the ground zero of the pandemic and large business groups have lost faith in China and its policies. Those business are possibly targeting Indian territories to establish their set ups which is also backed and supported by the leadership of the country.

The Germanic/Latin countries: France has been selected in this group as it is the 5th largest economy of the world, also stands at 2nd position in Europe, following Germany. The country is already a place of business for more than 20,000 foreign businesses establishments. In the AT Kearney Confidence Index Report (2020), France has maintained its position at 5th in a list of 25.

  1. The Asian countries: China is selected for the Asian region because the country has witnessed tremendous growth in the past decade; the country incorporates the largest population of the world and has used the human force as an asset.

As per the latest report by World Bank on the Ease of Doing Business rankings, the recent acceleration of China in reforming its businesses has remain successful especially in the previous two financial years and the country has improved its ranking from 78th in 2018 to 31st in 2020. China also features among the top 10 economies with the biggest improvement in business environment for two years in a row as shown in the following graph:-

Also as per AT Kearney Confidence Index Report (2020), only three emerging markets could make a position in the list of the index which is topped by China followed by UAE and Brazil.

IFRS Adoption

Background

Financial reports aims at presenting the financial data about the true, operational performance (income statement) flow of funds (cash flow statement) and financial position (balance sheet) of a company. They are required to provide material information to the stakeholders for accurate financial decision making. The important five qualities of an ideal financial report are as follows:

  1. Understandability
  2. Comparability
  3. Reliability
  4. Consistency
  5. Timeliness

Purpose

Conducting financial accounting and auditing practices with higher quality can result in financial sector and capital markets development. For effective and efficient functioning of capital markets, stakeholders should remain confident about fairness of financial reporting. True and fair financial reporting also provides easy access to credit that eventually leads towards financial stability and economic growth (Figure: 1).

Scope

For ensuring high quality at reporting, a suitable and strong infrastructure is required to be developed that is able to support implementation of accounting standards. The quality reporting infrastructure is not limited to auditing and accounting standards and requires additional qualities like education, training, monitoring, etc. The supporting pillars that are additionally required are as shown in Figure 2.

Discussion on Indian Pharmaceuticals Industry Analysis

The Indian Case

In India, financial statements of companies are prepared as per the accounting standards issued by the Indian Institute of Chartered Accountants (ICAI). The financial statements are prepared on the basis of prescribed accounting standards and provide all the required material data to conduct an audit procedure. The accounting standards provide a system of measurement and rules of disclosure for preparing the financial statements. The rationale behind accounting standards is improvement of quality of financial reporting (IFRS. 2020).

The governments and regulators of all around the world are adopting internationally accepted accounting principles and thus are converging their nationally accepted accounting concepts and principles with the International Financial Reporting Standards (IFRS) (Capkun, Collins & Jeanjean 2016).

The French Case

In France, adoption of IFRS standards is mandatory for the accounts published by listed companies, and optionally for consolidated accounts of the non-listed companies.

The Chinese Case

China's national standards are substantially converged with IFRS Standards, and China has committed to adopt IFRS Standards for reporting by at least some domestic companies although there is no timetable for completion of the process. Chinese companies representing more than 30 per cent of the total market capitalization of the domestic market produce IFRS-compliant financial statements as a result of their dual listings in Hong Kong and other international markets.

The Selection of Optimum Industry: Pharmaceutical

The world currently is going through a situation of crisis due to the emergence of the Covid 19 Pandemic. The governments are fighting the waging war at two fronts which includes containment of the spread of the disease and mitigation of the resulting economic downturn. However, the pandemic has taught long-term lessons to the policy makers globally that always prioritize arms and weapons over health and education (as per national budgets of most of the nations). The following two images will showcase the nations with big defense budgets and the largest arms exporters of the world:-

The below image shows the data of the health spending of nations (regions) on health and military:-

Typically, the governments of most of the American and European regions spent more than 2.5 times on health as compared to the military spending. However, there are some major regional exceptions primarily including Asian, Middle East and African, which are densely populated low income group countries, but are spending larger on military against health care which is highly required.

The pandemic has shifted the focus of the governments and policy makers more on health care than arms and weapons. They are now making larger efforts to make their healthcare infrastructure stronger. And it has been proven that a small medicine can be a stronger defense as compared to weapons. Also, the nations, their medicinal agencies and the private pharmaceutical players are racing to find the cure (or vaccine) for Covid-19 virus.

For the first time in 2014, the overall global pharmaceutical revenues exceeded the ceiling of US$ 1 trillion. As per researches, the pharmaceutical industry worldwide is going to cross the levels of $ 1.57 trillion by 2023. The North American region will hold the top position with 45.33% followed by the Asian Pacific pharmaceuticals market (led by China and India) with around 24.07% and with a little decline in the contribution ratio, the European region with 20.24% (led by France and Germany). 

This is the reason that the pharmaceutical industry has been chosen for Tesco to make investments. The case of all the three selected countries on the industry (pharmaceuticals) perspective has been discussed in the following points:-

Discussion on Indian Pharmaceuticals Industry Analysis

The Indian Case

India is a very important country in the global pharmaceutical sector as it supplies more than 50% of the overall demand of the world for various vaccines, it supplies over 40% of US’s generic demand and 25% of overall UK’s medicines demand. Also, India is the 2nd largest contributor of biotech and pharmaceutical workforce of the world. The turnover of the domestic pharmaceutical market of India reached US$ 20.03 billion in 2019, an increment of 9.8 % y-o-y.

The French Case

France is the largest spender (as a % of GDP) on health care after USA as shown in the following figure:

However, the French pharmaceuticals industry is likely to witness a decline in the turnover from US$ 35.5billion in 2017 to US$ 34.16 billion in 2021, but it will still remain a prominent player in the global pharmaceutical industry.

The Chinese Case

China's pharmaceutical market has shown consistent growth in the recent years, and is estimated to reach $161.8 billion by 2023, taking 30 % share of the global pharmaceutical and biotechnology market. With over 4,000 pharmaceutical players, China is the second-largest pharmaceutical industry globally. But it is evident that China (Wuhan) was the centre of origin of Covid-19 and thus the world is decreasing its medical dependence on China.

Recommendation on Indian Pharmaceuticals Industry Analysis

On the basis of the discussions and analysis made in the report, it can be concluded that India is the best recommendation for making future investments considering the pharmaceutical industry.

Reference for Indian Pharmaceuticals Industry Analysis

Brookings. (2020). Awakening in the post-pandemic world. Available at: https://www.brookings.edu/blog/future-development/2020/03/27/awakening-in-the-post-pandemic-world/

Capkun, V., Collins, D., & Jeanjean, T. (2016). The effect of IAS/IFRS adoption on earnings management (smoothing): A closer look at competing explanations. Journal of Accounting and Public Policy, 35(4), 352-394.

De George, E. T., Li, X., & Shivakumar, L. (2016). A review of the IFRS adoption literature. Review of Accounting Studies, 21(3), 898-1004.

Forbes. (2020). Global Health And Military Expenditure In Comparison [Infographic]. Retrieved from https://www.forbes.com/sites/niallmccarthy/2016/04/22/global-health-and-military-expenditure-in-comparison-infographic/#36673fd30208

Forbes. (2020). Which Countries Spend The Largest Share Of Their GDP On Health? Retrieved from: https://www.forbes.com/sites/niallmccarthy/2020/04/01/which-countries-spend-the-largest-share-of-their-gdp-on-health/#68f2337a4798

Fuad, F., Juliarto, A., & Harto, P. (2019). Does IFRS convergence really increase accounting qualities? Emerging market evidence. Journal of Economics, Finance and Administrative Science, 24(48), 205-220.

Globe News Wire. (2020). Growth Insights on China's Pharmaceutical Industry, 2020-2025 - Innovative Biologic Pipeline Bridging the Gap with Regulated Market. Retrieved from https://www.globenewswire.com/news-release/2020/02/04/1979590/0/en/Growth-Insights-on-China-s-Pharmaceutical-Industry-2020-2025-Innovative-Biologic-Pipeline-Bridging-the-Gap-with-Regulated-Markets.html

IBEF. (2020). Indian Pharmaceuticals Industry Analysis. Retrieved from https://www.ibef.org/industry/indian-pharmaceuticals-industry-analysis-presentation#:~:text=India's%20domestic%20pharmaceutical%20market%20turnover,(US%24%201.47%20billion).

Li, S., Sougiannis, T., & Wang, S. (2017). Mandatory IFRS adoption and the usefulness of accounting information in predicting future earnings and cash flows. Available at SSRN 2948775.

Pharmaceutical Commerce. (2020). Global pharma spending will hit $1.5 trillion in 2023, says IQVIA. Retrieved from: https://pharmaceuticalcommerce.com/business-and-finance/global-pharma-spending-will-hit-1-5-trillion-in-2023-says-iqvia/

Pharmaceutical Technology. 2020. Report: French pharmaceutical market to witness negative compound annual growth rate of 1% by 2021. https://www.pharmaceutical-technology.com/research-reports/researchreportreport-french-pharmaceutical-market-to-witness-a-negative-compound-annual-growth-rate-of-1-by-2021-5758158/

The NIE. 2020. Healthcare vs Defence: Coronavirus and how the world invested in the wrong fight!. https://www.newindianexpress.com/specials/2020/apr/15/healthcare-vs-defence-coronavirus-and-how-the-world-invested-in-the-wrong-fight-2130348.html

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