International Accounting, 6/e - PowerPoint PPT Presentation

1 / 24
About This Presentation

International Accounting, 6/e


International Accounting, 6/e Frederick D.S. Choi Gary K. Meek Chapter 5: Reporting and Disclosure Learning Objectives Distinguish voluntary and mandatory ... – PowerPoint PPT presentation

Number of Views:58
Avg rating:3.0/5.0
Slides: 25
Provided by: tomy9


Transcript and Presenter's Notes

Title: International Accounting, 6/e

International Accounting, 6/e
  • Frederick D.S. Choi
  • Gary K. Meek

Chapter 5 Reporting and Disclosure
Learning Objectives
  • Distinguish voluntary and mandatory disclosure
    and the applicable regulatory measures.
  • Identify the broad objectives for accounting
    disclosure systems in investor-oriented equity
  • Discuss triple-bottom line reporting and why it
    is a growing tendency among large multinational
  • Have a basic understanding of the following
    selected corporate financial-disclosure
    practices (a) disclosures of forward-looking
    information, (b) segment disclosures, (c) social
    responsibility reporting, (d) special disclosures
    for non-domestic financial statement users, and
    (e) corporate governance disclosures.

Development of Disclosure
  • Voluntary disclosure
  • Voluntary disclosures are increasing as investors
    demand more detailed and timely information.
  • But managers incentives for disclosure arent
    always aligned with those of investors.
  • Disclosure regulations and third party
    certification can improve the functioning of
    capital markets.

Development of Disclosure (contin)
  • Regulatory disclosure requirements
  • Stock exchanges want to be sure that investors
    have enough information to evaluate a companys
    performance and prospects.
  • Disclosure protects investors, but shareholder
    protection varies across countries.
  • Twin objectives of investor oriented markets
    (Frost and Lang 1996)
  • Investor protection
  • Investors are provided with material information.
  • And are protected through monitoring and
  • Market quality
  • Markets are fair, orderly, and efficient.
  • And free from abuse and misconduct.
  • SEC financial reporting debate
  • Foreign registrants must furnish financial
    information substantially similar to that
    required of domestic companies.
  • Must reconcile net income and stockholders
    equity to U.S. GAAP if the registrant uses
    another GAAP.
  • Do SEC requirements deter foreign companies from
    listing their securities in the U.S.?
  • Or do the requirements protect investors and
    ensure the quality of U.S. capital markets?
  • Sarbanes-Oxley requirements are also believed to
    deter foreign companies from listing in the U.S.

Reporting and Disclosure Practices
  • Forward-looking information
  • Includes
  • Forecasts of revenues, income, cash flows,
    capital expenditures
  • Prospective information about future economic
    performance or position
  • Statements of managements plans and objectives
    for future operations
  • Softer information about future prospects is more
    common than precise forecasts.
  • Why?
  • Forecasts are inherently unreliable.
  • Legal repercussions if forecasts arent met.

Reporting and Disclosure Practices (contin)
  • Segment disclosures
  • Disaggregated information about a firms industry
    and geographic operations and results
  • Includes disaggregated information on
  • Revenue
  • Income
  • Depreciation and amortization
  • Capital expenditures
  • Assets
  • Liabilities
  • Helps users understand how the parts make up the
  • Product lines and areas of the world vary in
    terms of risks, returns, and opportunities

Reporting and Disclosure Practices (contin)
  • Social responsibility reporting
  • Reporting to stakeholders employees,
    customers, suppliers, governments, activist
    groups, the general public, in addition to
  • The measurement and communication of information
    about a companys effects on employee welfare,
    the local community, and the environment
  • A way to demonstrate corporate citizenship
  • Sustainability reports integrate economic,
    social, and environmental performance
  • Triple-bottom line reporting profits, people,
  • Increasingly being audited to avoid the charge of

Reporting and Disclosure Practices (contin)
  • Examples
  • Employee reporting
  • Employment levels and personnel costs by division
    and region of the world
  • Management development
  • Compensation
  • Diversity
  • Human rights
  • Environmental reporting
  • Impact of production processes, products, and
    services on
  • Air
  • Water
  • Land
  • Biodiversity
  • Human health
  • Water, raw material, and energy consumption
  • Activities to reduce pollution
  • Spending on all of the above
  • Despite criticisms, becoming mainstream among
    multinational companies
  • Global Reporting Initiative has issued guidelines

Reporting and Disclosure Practices (contin)
  • Special disclosures for non-domestic financial
    statement users
  • Language translations and currency restatements
  • Discussion of GAAP differences
  • Limited restatement of income and stockholders
    equity to another GAAP
  • This is the SEC requirement
  • Complete financial statements using another GAAP,
    such as IFRS

Reporting and Disclosure Practices (contin)
  • Corporate governance disclosures
  • Governance means the responsibilities,
    accountability, and relationships among
    shareholders, board members, and managers to meet
    corporate objectives.
  • Governance issues include
  • Rights and treatment of shareholders
  • Responsibilities of the board
  • Disclosure and transparency
  • Role of stakeholders

Reporting and Disclosure Practices (contin)
  • Governance framework (Dallas 2004)
  • Market infrastructure
  • Ownership patterns
  • Extent to which companies are publicly listed
  • Ownership rights
  • Market for corporate control
  • Board structure
  • Legal environment
  • Type of legal system
  • Shareholder/stakeholder rights
  • Company/securities laws
  • Regulatory environment
  • Regulatory bodies and their purview
  • Regulatory gaps/overlap
  • Information and timing requirements
  • Effectiveness of enforcement
  • Informational infrastructure
  • Accounting standards
  • Auditing standards

Reporting and Disclosure Practices (contin)
  • Internet business reporting and disclosure
  • World Wide Web increasingly used as an
    information dissemination channel.
  • XBRL will allow users to easily manipulate
    companies financial statement data.

Annual Report Disclosures in Emerging-Market
  • Generally less extensive and less credible than
    disclosures of companies from developed
  • Empirical evidence shows that earnings are less
    opaque in developed countries than in developing
  • Monitoring and enforcement of disclosure
    requirements are also less extensive in
    developing countries.

Implications for Financial Statement Users
  • Expect wide variation in disclosure levels and
    financial reporting practices.
  • The levels of mandatory and voluntary disclosure
    are increasing worldwide.
  • Managers of companies from low-disclosure
    countries should consider adopting enhanced
  • Enhanced disclosures can result in competitive
    advantage over companies with restrictive
    disclosure policies.

Chapter Exhibits
Exhibit 5-1 (contin)
Exhibit 5-1 (contin)
Chapter Exhibits (contin)
Exhibit 5-4 (contin)
Chapter Exhibits (contin)
Chapter Exhibits (contin)
Chapter Exhibits (contin)
Chapter Exhibits (contin)
Chapter Exhibits (contin)
Write a Comment
User Comments (0)