Question

Case 1: Infosys Technologies (India)

One of India’s new high-technology companies is Infosys, specializing in software development. Infosys is now listed on the NASDAQ, the first Indian company to be listed in the United States. While Infosys discloses more information than most Indian companies, as required by the SEC, the company voluntarily discloses a substantial amount of additional information, including a value-added statement, an economic value-added statement, brand valuations, current cost financial statements, and an “Intangible Assets Score Sheet” (see infosys.com for the most recent example of the intangible assets score sheet).

Questions

1. Discuss the reasons why Infosys might want to disclose additional information voluntarily.
2. Explain and discuss the relevance of the information items disclosed in the intangible assets scoresheet. How would you interpret the changes from 2003 to 2004?
3. Under what circumstances could voluntary disclosures by Infosys give rise to a competitive advantage rather than disadvantage?

Note: Infosys Reports and Filings Quarterly & Annual Reports listed from 1998 - 2016.

Answer 1

It's a very subjective question. There is nothing right or wrong. I have put together my thoughts below. Please go through them, and add your own thoughts to the same.

The reasons why Infosys might want to disclose additional information voluntarily:

• Companies from developing countries and least developed countries have reporting frameworks that are still evolving. We haven't seen adequate disclosures in financial statements of the company. By providing additional information, Infosys intends to score ahead of its peers.
• Additional information provides additional indicators and state of financial & operational health of the companies. Analysts, lenders and media will analyze these information and provide strong positive opinion. This will improve the image and brand of the company.
• Additional disclosures, in a way, gives a signal about the positive and healthy signs of the company.
• Additional disclosures speak volumes about the corporate governance practices and transparency of the company.

The relevance of the information items disclosed in the intangible assets score sheet and interpretation of the changes from 2003 to 2004:

• The company is in the business of software development. It would have voluminous number of intangible assets.Such assets are very subjective and plenty of information is required to assess them. Information items disclosed in the intangible assets score sheet tends to be more elaborate and subjective information to make relevant stakeholders fully aware of what all intangible assets the firm is in possession of.
• Valuation of such intangible assets add to the valuation of the firm. Therefore the information provided in the scoresheet can be used by the analysts and media.
• Changes:
  • Between 2003 and 2004, the company improved its client base, probably the most important intangible asset.
  • The company is now getting higher value contracts from the existing customers
  • Trust and confidence of the customers are increasing.
  • The company has clients in each of the value dimensions. This speaks a lot about the diversified client base, diversified revenue base.

Under what circumstances could voluntary disclosures by Infosys give rise to a competitive advantage

• Voluntary disclosures reaching to clients, media, investors and analysts will definitely give rise to competitive advantage. Media and public elsewhere that are not so familiar with Infosys, can learn a lot about the company and gauge it's financial health. This can lead to significant competitive advantage to Infosys.
• Voluntary disclosures can add to the assessment of the form for various tenders and projects in the field of software development. This can bring more business to Infosys.