Question

Stock of Credit Suisse Group trades on the New York Stock Exchange as well as in various European stock markets. The company’s Form 20-F reported the following.

The accompanying consolidated financial statements of Credit Suisse Group AG (the Group) are prepared in accordance with accounting principles generally accepted in the US (US GAAP) and are stated in Swiss francs (CHF). The financial year for the Group ends on December 31. On October 21, 2015, the Group announced its new strategy and organization, which included the introduction of a new segment structure. In connection with the strategic review of the Group, restructuring expenses of CHF 355 million were recognized in 2015. Reclassifications have been made to the prior year’s consolidated financial statements to conform to the current presentation. The reclassifications had no impact on net income/(loss) or total shareholders’ equity.

Required

a. Why would Credit Suisse prepare its financial statements in accordance with U.S. GAAP?

b. Credit Suisse separately reported the CHF 355 million restructuring expense. Explain how this reporting could help analysts who seek to predict future earnings.

Answer 1

Part a)

The financial statements are prepared to provide financial data and information to various groups of stakeholders. The possible reason as to why Credit Suisse prepared its financial statements in accordance with U.S. GAAP is to enable different users/stakeholders (such as investors, government bodies, stock analysts, etc.) to understand the financial statements without any difficulties/complexities and to faciliate the comparison of its financial performance with other U.S. companies (which are its competitors).

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Part b)

Credit Suisse separately reported the CHF 355 million restructuring expense because of its transitory nature. A transitory item is one which is nonrecurring in nature. It is a one time gain/loss/expense which is not going to occur again in the future and cannot be treated as a part of normal/day to day business operations of the company. The information provided in the income statement is frequently used by analysts/investors to estimate the future earnings of the company. By separately reporting the restructuring expense, Credit Suisse has made it easier for the analysts/investors to estimate/predict the future earnings on the basis of information related to actual operations of the company and without taking the value of CHF 355 million into consideration. If the value of CHF 355 million had not been separately reported, the future income would have been wrongly estimated at a lower level by the investors/analysts because of higher estimated future expenses.