This Paper is a report about DIAGEO's 2023 financial statement.
It highlights the company's various macroeconomic, industrial and Firm events and enumerate their potential implications for the accounting policies and reporting of the company.
It also shows whether DIAGEO fully complies all required disclosures of its accounting policies (IAS 16; IAS 38; IFRS 3; IAS 36 and IAS 2).
DIAGEO is a British company founded in December 1979 by the merger of Grand Metropolitan (GMP) and Guinness. Diageo aspires to be among the world's most prosperous, dependable, and esteemed consumer goods companies. Diageo prioritizes team engagement while adhering to defined strategies like efficient growth, consistent value creation, and valuing credibility and trust. Diageo has experienced a range of external, industry, and macroeconomic events over the years that have impacted the business. This document will enumerate these incidents along with any potential implications for the accounting policies and reporting of the company.
Table of Contents
1. Background
1.1 Macro-economic Level
1.2 Industry Level
1.3 Firm Level
1.4 Expectations
2. Accounting Policy choice
2.1 Property, Plant and Equipment: IAS 16
2.2 Intangible assets: IAS 38
2.3 Business Combinations: IFRS 3
2.4 Impairment: IAS 36
2.5 Inventories: IAS 2
3. Conclusion
Objectives and Research Focus
This paper examines how various internal and external events, such as climate change, geopolitical conflicts, and strategic corporate acquisitions or disposals, influence the accounting policies and financial reporting of the British consumer goods company Diageo based on specific IFRS standards.
- Analysis of external macroeconomic and industry-specific risk factors.
- Evaluation of corporate strategic shifts including acquisitions and divestments.
- Assessment of accounting standard applications (IAS/IFRS) regarding asset valuation.
- Investigation into the management of intangible assets and impairment testing.
- Review of inventory accounting in the context of rising operational costs.
Excerpt from the Book
2.1 Property, Plant and Equipment: IAS 16
Diageo recognizes its buildings and land at their carrying amount (acquisition cost less accumulated depreciation). Other PPEs are amortized on straight-life basis according to their useful life. This means that Diageo uses the cost method to measure its PPE. Freehold land has an indefinite life and is therefore not depreciable. Leased properties are generally amortized over the remaining term of the lease. Buildings, plant, and equipment are amortized over 10 to 50 years; Other plant and equipment over 5 to 40 years; fixtures and fittings and returnable bottles and crates over 5 to 10 years. This first recognition follows IAS 16 standards.
As expected, there should be changes in the PPE following the acquisitions and disposals made by Diageo. As can be seen from the consolidated balance sheet, an increase in PPE from £5848 in 2022 to £614 million in 2023 has been recognized impacting the total amount of assets and resulting in an increase in gross profits. PPE are tested for impairment annually, or more regularly if events or circumstances indicate that the assets may be impaired and their carrying amount may not be recoverable, to ensure that they are not carried at values above their recoverable amount. However, the PPE (part of assets) of Don Papa Rum was not tested for impairment in the 2023 financial year, as its assets and liabilities were provisional. The PPE cost table shows decrease in hyperinflation adjustment costs in Turkey and Venezuela in 2023. Hyperinflation adjustment aims to reflect monetary depreciation on assets in an economic characterized by extreme high inflation. However, the considerable drop in these costs from £97 in 2022 to £20 million in 2023 proves the stabilization of inflation and exchange rate volatility in these Zones. The increase in the book value of PPE is due not only to the various acquisitions made by Diageo during the year, but also to the government subvention of £147
Summary of Chapters
1. Background: Provides an overview of Diageo's history and analyzes external risks such as climate change and geopolitical tensions alongside industry-level challenges.
2. Accounting Policy choice: Analyzes the application of specific IAS and IFRS standards including property, intangible assets, business combinations, impairment, and inventories.
3. Conclusion: Summarizes the findings, noting that while some detailed expectations could not be fully addressed, Diageo generally adheres to IFRS standards.
Keywords
Diageo, IFRS, IAS 16, IAS 38, IFRS 3, IAS 36, IAS 2, Financial Reporting, Accounting Policy, Impairment, Goodwill, Inventory, Sustainability, Macroeconomic Risk, Capital Expenditure
Frequently Asked Questions
What is the core focus of this term paper?
The paper evaluates how external and internal corporate events impact the financial reporting and accounting policy choices of the company Diageo under the framework of various international financial reporting standards.
Which central topics are discussed in the work?
The work covers macroeconomic impacts, industry trends, corporate restructuring via acquisitions and disposals, and the application of accounting rules for assets, liabilities, and goodwill.
What is the primary objective of this study?
The aim is to verify whether Diageo's financial reporting in 2023 correctly reflects the company's operational changes and risks in compliance with IFRS requirements.
Which scientific methodology is applied?
The author uses a comparative analysis method, evaluating the company's documented financial statements against the requirements of specific accounting standards like IAS 16, IAS 38, IFRS 3, IAS 36, and IAS 2.
What is covered in the main section of the paper?
The main section provides a detailed breakdown of how Diageo accounts for tangible assets, intangible assets, business combinations, impairment losses, and inventory valuations in light of 2023 financial reports.
Which keywords best characterize the document?
Key terms include Diageo, IFRS, IAS standards, financial reporting, impairment, and corporate strategy.
How does the Russian-Ukrainian conflict impact Diageo’s accounting according to the report?
The closure of the commercial unit in Russia is expected to incur costs related to severance, dismantling, and legal fees, which may also necessitate asset depreciation and provisions for inventories.
Does the acquisition of new brands affect Diageo's Goodwill accounting?
Yes, acquisitions like Don Papa Rum involve the recognition of Goodwill and require valuation of assets and liabilities at the acquisition date according to IFRS 3.
What is the author's conclusion regarding Diageo’s compliance with IFRS?
The author concludes that despite some missing details in the annual report, Diageo demonstrates adherence to the analyzed IFRS standards.
How does inflation affect the company’s inventory valuation?
Inflation contributed to rising raw material costs, leading to an increase in total inventory costs, appearing in the balance sheet as adjustments reflecting market values and potential obsolescence.
- Citation du texte
- Lesly Tsague (Auteur), 2024, "DIAGEO" Financial Report 2023, Munich, GRIN Verlag, https://www.grin.com/document/1470682
