Have a basic understanding of the following selected corporate financialdisclosure practices: (a) disclosures of forward-looking information, (b) segment disclosures, (c) social responsibility reporting, (d) special disclosures for nondomestic financial statement users, and (e) corporate governance disclosures.
3
Development of Disclosure
Voluntary disclosure
Voluntary disclosures are increasing as investors demand more detailed and timely information.
But managers’ incentives for disclosure aren’t always aligned with those of investors.
International Accounti. Meek
Chapter 5: Reporting and Disclosure
1
Learning Objectives
Distinguish voluntary and mandatory disclosure and the applicable regulatory measures.
Disclosure regulations and third party certification can improve the functioning of capital markets.
4
Development of Disclosure (contin)
Regulatory disclosure requirements
Stock exchanges want to be sure that investors have enough information to evaluate a company’s performance and prospects.
Disclosure protects investors, but shareholder protection varies across countries.
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.?
7
Reporting and Disclosure Practices
Forward-looking information Includes
Forecasts of revenues, income, cash flows, capital expenditures
Prospective information about future economic performance or position
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.
Statements of management’s plans and objectives for future operations
8
Softer information about future prospects is more common than precise forecasts. Why?
5
Twin objectives of investor oriented markets (Frost and Lang 1996):
Investor protection ▪ Investors are provided with material information. ▪ And are protected through monitoring and enforcement.
Market quality ▪ Markets are fair, orderly, and efficient. ▪ And free from abuse and misconduct.
6
SEC financial reporting debate
Foreign registrants must furnish financial information substantially similar to that required of domestic companies.
Identify the broad objectives for accounting disclosure systems in investor-oriented equity markets.
2
Discuss “triple-bottom line” reporting and why it is a growing tendency among large multinational corporations.