1、International Accounting, 6/eFrederick D.S. ChoiGary K. MeekChapter 5: Reporting and Disclosure1Learning ObjectivesDistinguish voluntary and mandatory disclosure and the applicable regulatory measures.Identify the broad objectives for accounting disclosure systems in investor-oriented equity markets

2、. 2Discuss “triple-bottom line” reporting and why it is a growing tendency among large multinational corporations.Have a basic understanding of the following selected corporate financial-disclosure practices: (a) disclosures of forward-looking information, (b) segment disclosures, (c) social respons

3、ibility reporting, (d) special disclosures for non-domestic financial statement users, and (e) corporate governance disclosures.3Development of DisclosureVoluntary disclosureVoluntary disclosures are increasing as investors demand more detailed and timely information. But managers incentives for dis

4、closure arent always aligned with those of investors.Disclosure regulations and third party certification can improve the functioning of capital markets.4Development of Disclosure (contin)Regulatory disclosure requirementsStock exchanges want to be sure that investors have enough information to eval

5、uate a companys performance and prospects.Disclosure protects investors, but shareholder protection varies across countries.5Twin objectives of investor oriented markets (Frost and Lang 1996):Investor protectionInvestors are provided with material information.And are protected through monitoring and

6、 enforcement.Market qualityMarkets are fair, orderly, and efficient.And free from abuse and misconduct.6SEC financial reporting debateForeign registrants must furnish financial information substantially similar to that required of domestic companies.Must reconcile net income and stockholders equity

7、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

8、 listing in the U.S.7Reporting and Disclosure PracticesForward-looking information IncludesForecasts of revenues, income, cash flows, capital expendituresProspective information about future economic performance or positionStatements of managements plans and objectives for future operations8Softer i

9、nformation about future prospects is more common than precise forecasts. Why? Forecasts are inherently unreliable.Legal repercussions if forecasts arent met.9Reporting and Disclosure Practices (contin)Segment disclosuresDisaggregated information about a firms industry and geographic operations and r

10、esultsIncludes disaggregated information onRevenueIncome10Depreciation and amortizationCapital expendituresAssetsLiabilitiesHelps users understand how the parts make up the wholeProduct lines and areas of the world vary in terms of risks, returns, and opportunities11Reporting and Disclosure Practice

11、s (contin)Social responsibility reportingReporting to “stakeholders”: employees, customers, suppliers, governments, activist groups, the general public, in addition to investors.12The measurement and communication of information about a companys effects on employee welfare, the local community, and

12、the environmentA way to demonstrate corporate citizenship“Sustainability” reports integrate economic, social, and environmental performance“Triple-bottom line reporting”: profits, people, planetIncreasingly being audited to avoid the charge of “green-washing”13Reporting and Disclosure Practices (con

13、tin)Examples:Employee reportingEmployment levels and personnel costs by division and region of the worldManagement developmentCompensationDiversityHuman rights14Environmental reportingImpact of production processes, products, and services on AirWater LandBiodiversityHuman health15Water, raw material

14、, and energy consumptionActivities to reduce pollutionSpending on all of the aboveDespite criticisms, becoming mainstream among multinational companiesGlobal Reporting Initiative has issued guidelines16Reporting and Disclosure Practices (contin)Special disclosures for non-domestic financial statemen

15、t usersLanguage translations and currency restatementsDiscussion of GAAP differencesLimited restatement of income and stockholders equity to another GAAPThis is the SEC requirementComplete financial statements using another GAAP, such as IFRS17Reporting and Disclosure Practices (contin)Corporate gov

16、ernance disclosuresGovernance means the responsibilities, accountability, and relationships among shareholders, board members, and managers to meet corporate objectives.18Governance issues include: Rights and treatment of shareholdersResponsibilities of the boardDisclosure and transparencyRole of st

17、akeholders19Reporting and Disclosure Practices (contin)Governance framework (Dallas 2004) Market infrastructureOwnership patternsExtent to which companies are publicly listedOwnership rightsMarket for corporate controlBoard structureLegal environmentType of legal systemShareholder/stakeholder rights

18、Company/securities lawsRegulatory environmentRegulatory bodies and their purviewRegulatory gaps/overlapInformation and timing requirementsEffectiveness of enforcementInformational infrastructureAccounting standardsAuditing standardsStructure of the accounting/auditing professionGovernance mechanisms

19、 and disclosures are improving around the world.OECD issued its revised Principles of Corporate Governance in 2004.Disclosure is a key element of any good system of corporate governance.20Reporting and Disclosure Practices (contin)Internet business reporting and disclosureWorld Wide Web increasingly

20、 used as an information dissemination channel.XBRL will allow users to easily manipulate companies financial statement data.21Annual Report Disclosures in Emerging-Market CountriesGenerally less extensive and less credible than disclosures of companies from developed countries.Empirical evidence shows that earnings are less opaque in developing countries than in developed countries.Monitoring and enforcement of disclosure requirements are also less