Individual Report of Pfizer INC

Executive Summary

Pfizer Inc. is an enormous pharmaceutical organization in the USA. Being an organization in the USA, Pfizer has not adapted to IFRS but still uses GAAP despite it being a publicly listed company. The company gives an outline of its environment to give investors the actual terrain on which their money is being taken through. The highlight of the risks and potential gains is important to the investors as well as other stakeholders in determining the sustainability of the business.

The cultural element of the United States has made reporting an elaborated affair with each organization placing itself on the edge with creativity and innovation in reporting. Aspects of environmental reporting, social responsibility and other non financial reporting activity evidenced in the Pfizer report exhibits a high level of disclosure and innovation. In the future as companies report using the IFRS standards, there is an expected increase in the use of more creative accounting but in addition more disclosures may become a requirement by regulation.


The purpose of this paper is to offer Modern Medical Ltd an insight into the financial reporting environment in the United States of America (USA) with a case of a similar company Pfizer Company being highlighted.

The scope of the study is limited to the historical, cultural, and political influence of the accounting standards used in the USA and a future outlook on the expected trends in financial reporting in future (Bradshaw 2010). A brief description on international matters has been looked into and much of it is a comparison of other standards to the American standards. The paper looks at the possible future scenario of USA financial reporting standards in relation to the international reporting standards. The other affiliated organizations of International Accounting Standards Board (IASB) have not been highlighted in this paper apart from the Financial Accounting Standards Board of the USA. The assumptions made in this paper are that:

  • There will not be a major unseen shift in financial reporting by companies around the world in the near future.
  • There exist no other accounting frameworks apart from the United States Generally Accepted Accounting Principles (USGAAP) and International Financial Reporting Standards (IFRS) for use in the USA (Beckman 2006).


Historical background

The International Accounting Standards Committee (IASC) was formed in 1973 to address the demand for accounting standards framework so that smaller countries could develop their own generally acceptable accounting principles (GAAP). The IASC was then evolved to another body, the international accounting standards Board (IASB). IASB was formed in 2001 had an aim of developing International financial reporting standards (IFRS). The IFRS were developed as the need arose for multinationals operating in many countries to consolidate the financial statements arose; the demand to have one global uniform reporting language for financial reporting also led to the development of the IFRS. In the United States of America (USA), the GAAP still form the guideline of reporting for financial statements. From the beginning of the year in 2005, the European Union legislated that its listed companies had to prepare consolidated financial statements using the IFRS (Beckman 2006).

During 2006, the Financial Accounting standards board (FASB) in the USA and the IASB came up with a number of major projects. Several undertakings by the Securities and Exchange Commission (SEC) during 2007 speeded up the timeframe of likely switch to IFRS from GAAP. In November 2007, an SEC Final Release permitted foreign companies in the USA to use the IFRS standards for preparation of financial statements for submission without a requirement of reconciliation of the reports to GAAP (Bradshaw 2010).

In December 2007, a Concept Release was issued by the SEC in quest of feedback on permitting all public companies in the USA the choice of applying IFRS instead of GAAP in preparation of their financial statements for submission (Bradshaw 2010). The American Institute of Certified Public Accountants (AICPA) Council restructured Rule 203 of the Code of Professional Conduct in May 2008 to give cognizance of the IASB as an international accounting standard setting body, resulting to all private corporations and not-for-profit organizations having the alternative of following IFRS in the preparation of their financial statements. IFRS have been adopted in over 100 countries around the world including the European Union countries and Australia (Economia 1993).

Cultural influences on financial reporting

Research has revealed that cultural differences lead to accountants in different cultures differently interpreting and applying accounting standards. Research revealed that accounting values influenced by culture are secrecy and conservatism, these affect the disclosure and measurement of financial information contained in financial reports that have the greatest biggest potential to influence cross-culture financial statement uniformity and comparability. A research conducted by Hofstede (2001), interviewing over 116000 employees of multinationals in over 50 countries, identified the cultural dimensions that reflect core values and which explain the similarities and general differences in cultures. These dimensions include:

  • Uncertainty avoidance – affects how comfortable people in the social order feel about ambiguity and uncertainty;
  • Individualism – his dimension explains the preference of the society whether it is closely knit and interdependent or loosely knit and independent;
  • Achievement orientation – the extent to which values like visible achievement and performance are stressed; and
  • Power distance – the levels of hierarchy and unequal power accepted within a culture.

The theory has been used widely in management and in other areas to study the influence of culture on individual and organizational work culture. The framework could be utilized in the accounting context to elucidate the SEC’s anxiety that appropriate application should encompasses faithful observance of requirements detailed in the standards, coupled with reasonable standards such that transverse the variety of users the requirements are time and again understood and well applied (Gray 2003).

The main objective of reporting the GAAP in the USA is to provide the investor with information so that they can make sound economic decisions. As such, the regulation of financial reporting is under the ultimate mandate of the Securities Exchange Commission (SEC) and the FASB is a setter of the standards. The GAAP in the USA is therefore entirely directed by the capital markets and private companies do not have any mandatory rules for preparation of financial statements for submission.

Culturally, the USA accountants are observed to be more liberal in financial reporting than most of their conservative European and Asian counterparts. With this in mind, if operating using the IFRS, the American accountant is likely to report more income, have a greater level of disclosure and “bend the rules” of the standard to the limit. The Gray’s accounting values is the accounting theory proposing these facts (Hofstede 2001).

Political processes

It has been argued that the process of setting accounting standards is a political process. Proponents for political involvement in setting of standards argue that:

  • Accounting has no universal acceptable standard or truth only a majority view.
  • Accounting standards do not equally benefit all affected parties.
  • All accounting decisions have economic consequences.
  • It is the of a country’s government is charged with the responsibility of adjudicating between economic interests during the selection of acceptable accounting standards.

Proponents for separation of Accounting standards and politics argue that:

  • There should be universally acceptable accounting standards.
  • Accounting should represent a true and fair position of the company.
  • Accounting should be historical and should not have any economic implications.
  • An independent body separate from government should be charged with the responsibility of developing acceptable accounting standards (Remeo & Leauby 2004).

Marketable Securities

The American Bankers Association (ABA) supported by correspondence by the chair of Federal Reserve Board, the Secretary of the Treasury, the chair of Federal Deposit Insurance Corporation, and two members of USA Senate, pressured FASB to draw back from a fact that all marketable securities should be shown at fair value further, the year-to-year adjustment in fair value get absorbed into earnings. The banking sector worries were that the volatility of the earnings that would be as a result of capturing the adjustments in fair value of the holdings to earnings directly. the FASB in September 1992, on its Statement and Exposure Draft of the Financial Accounting Standards (SFAS) No. 115, issued in May 1993, fashioned the portfolio of securities offered for sale, whose Year-to-year adjustment in fair value was to be taken to shareholders equity as opposed to earnings (Zeff & Dharan 1997).

Stock Options

During 1992-95, a second successful lobbying campaign in which an Exposure Draft by the FASB requiring stock options conferred to employees by companies be estimated at fair value and that the corresponding expense be recorded in the income statement as an expense was fiercely opposed by the industry. Companies, and trade associations, lobbied prominent Senators to initiate a succession of bills with the aim of frustrating any effort by FASB to advance the proposal. At a particular point, the House of Senate voted for a sense of the Senate resolution advising the FASB to shelf its proposal on employee stock options accounting, highlighting its severe economic consequences and in particular for businesses in sectors of new-growth which relied heavily on entrepreneurship by employees. Pressure from Congress became so forceful and insistent leading to the fears by the SEC chairman that if the FASB approved its accounting for employee stock option proposal that the jeopardize private sector command of setting accounting standards (CPA Journal 2001). Ultimately, under pressure from key members of the House of Congress, the FASB had to issue SFAS No.123, passed by a 5-2 vote, which required footnote disclosure of the expected dilution effect of the stock options to employees on reported earnings (Zeff 2003).

Future of converging IFRS and US GAAP

Convergence of the IFRS and the GAAP of the USA would mean that the American companies operating vast operations across the globe will have lower costs of preparing the financial statements since the financial statements in USA will have the same requirements as those of other countries (Bradshaw 2010).

Convergence will also lead to greater comparability of financial statements from different regions. This will make it easier for auditors, accountants, and even investors to compare companies in the USA and those outside the USA. International investors will also be capable of making sound decisions on where to invest since they will have comparable information from different markets (Beckman 2006).

Convergence to one global set of accounts may lead to the SEC adoption of the IFRS as the similarity in the two sets of rules increase. Convergence alone is viewed as a long path which may never eliminate all the differences existing between the two standards. The SEC has scheduled the adoption of the IFRS to the year 2014 for listed companies in the USA (Arthur 2001).

Description of reporting


The section provides information about the following: the Pfiner Company’s 2011 performance; operating environment; their strategy; business development initiatives, such as acquisitions, dispositions, licensing and collaborations; and financial guidance for 2012

Significant Accounting Policies

Discusses those accounting policies and estimates that are considered important in understanding Pfizer’s consolidated financial statements. These include:

Analysis of the Consolidated Statements of Income

  • Revenues. The section provided an investigation of products and revenues for the three consecutive years ending December 31, 2011
  • Costs and Expenses. The section a discussion costs and expenses.
  • Provision for Taxes on Income. This section provides a discussion of items impacting tax provisions.
  • Discontinued Operations. The section gives an in-depth analysis of the effect of discontinued operations on financial statements.
  • Adjusted Income. The section gives a discussion of alternative views of performance as used by the management.

Analysis of the Consolidated Balance Sheets

The section provides a discussion about changes in some accounts in the balance sheet. Examination of the Consolidated Statements of Cash Flows offers a study of consolidated cash flow for three years ending December 31, 2011. Analysis of Financial situation, Liquidity and Capital Resources section offers an examination of assets and liabilities as at December 31, 2011 and also December 31, 2010, and additionally, a discussion of debt outstanding and other financing commitments as at December 31, 2011.Contained in the analysis of debt outstanding is a forecast of the sum of financial ability accessible to assist fund future activities of Pfizer (Archer & Arrnosio 2008).

New Accounting Standards

The section examines accounting standards Pfizer has adopted recently, and those that have been recently issued, but not adopted by Pfizer yet. Forward-looking factors and information that may influence future results part, gives a picture of the uncertainties and risks that might lead to actual results differing materially from the ones discussed in forward-looking statement offered in this Financial Review involving Pfizer’s operating and financial performance, prospects and business plans, products candidates and in-line product, capital allocation, strategic review, and dividend-rate and share-repurchase plans. Incorporated in the part are considerations of Financial Risk Management and litigation and contingency (Agrawal 2003).


Pfizer Inc. is a large pharmaceutical company in the USA. Being a company in the USA Pfizer has not adapted to IFRS but still uses GAAP despite it being a publicly listed company.

The company gives an outline of its environment to give investors the actual terrain on which their money is being taken through. The highlight of the risks and potential gains is important to the investors as well as other stakeholders in determining the sustainability of the business.

The cultural aspect of the USA has made reporting a detailed affair with each company placing itself on the edge with creativity and innovation in reporting. Aspects of environmental reporting, social responsibility and other non financial reporting activity evidenced in the Pfizer report exhibits a high level of disclosure and innovation.

In the future as companies report using the IFRS standards, there is an expected increase in the use of more creative accounting but also more disclosures may become a requirement by regulation.

Companies like Pfizer may lobby against the full adoption of the international accounting standards and may even seek national legislation to block some clauses from applying to them as has been the case in some countries adopting the IFRS.


Agrawal, N 2003, Management of working capital, Sterling Publishers Ltd, New Delhi.

Archer, S & Arrnosio, D 2008, the theory of business finance, Sterling Publishers Ltd New Delhi

Arthur, L 2001, ‘Four personal commentaries on the longest serving SEC chairman in U.S. history’, CPA Journal, vol. 25 no. 26, pp. 28-34.

Beckman, T 2006, Credits and collection management and theory, McGraw Hill, New Delhi.

Bradshaw, M 2010, ‘Response to the SEC’s proposed rule- roadmap for the potential use of financial statements prepared in accordance with International Financial Reporting Standards’, Accounting Horizons, vol. 24 no. 1, pp. 45-52.

Economia, A 1993, ‘The politics of accounting standards’, Accounting Horizons, vol. 12 no. 3, pp. 142.

Gray, S 2003, ‘Towards a theory of cultural influence on the development of accounting systems internationally’, Abacus, vol. 24 no.1, pp. 23-27.

Hofstede, G 2001, Culture’s consequences: Comparing values, behaviors, institutions, and organizations across nations, 2nd edn, Sage, Thousand Oaks, CA.

Remeo, G & Leauby, B 2004, ‘The Bookkeepers’ Beneficial Association of Philadelphia: an early signal in the United States for a professional organization’, Accounting History, vol. 9 no. 2, pp. 7-33.

Zeff, S & Dharan, B 1997, The U.S. senate votes on accounting for employee stock options in readings & notes on financial accounting, McGraw-Hill, New York, NY.

Zeff, S 2003, How the U.S. accounting profession got where it is today, McGraw-Hill, New York, NY.

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