Free Essay

Reporting and Disclosure

In: Business and Management

Submitted By kmj66273
Words 1027
Pages 5
International Accounting: Assignment 4
Chapter 5: Reporting and Disclosure
Strayer University

What is transparent reporting? Transparent reporting when speaking on financial statements means financials statements of high quality. These financial statements are clear, easily understood, frank and candid. Management makes decisions based on financial reports. So, it is the duty of the investor to understand the importance of transparent financial data when considering their choices. (http://ezinearticles.com/?Importance-Of-Transparency-In-Financial-Reporting&id=376424)
Explain how transparent financial reporting (a) protects investors and (b) improves market quality. Investors face a fundamental problem when making decisions. Each one has to ask themselves two questions. 1. What return is to be expected from this investment? 2. How much risk will I incur? Any investor likes high returns, with minimal risk.
If you can reduce an investor’s risk, then the company can acquire more capital at a much lower cost. However business is essentially risky. So how can risk be condensed for an investor? A method is to generate diverse types of investment securities (debt, preferred stock, and common stock, for example). But these securities do not get rid of business risk, they just alter it. When evaluating business threats and probable return, investors tackle an additional type of risk. This is a risk of the unknown. In the business world, risk of the unknown arises while an investor is not able to evaluate business risk or anticipated return, or both, with self-assurance. This risk is very real. Investors progress with caution by demanding higher returns. Financial statements aid investors by reducing risk of the unknown.
Investors want a financial statement that gives them a map of relevant information. It must be reliable. And it must have transparency. Meaning, it must permit the investor to see clearly what is under the surface and what risks they face. High quality, transparent financial statements aid investing by expounding the environment and therefore reducing risk of the unknown. (Transparency: So Investors Can Chart a Voyage. http://www.sec.gov/news/speech/spch356.htm)
The Hong Kong Exchange (HKE) is the second-largest stock market in Asia and the seventh-largest in the world. Go to the HKE website (www.hkex.com.hk) and learn about its financial reporting requirements.
1. To what extent do these requirements promote transparent financial reporting? 2. To what extent do these requirements protect investors and promote market quality?
The Securities and Futures Commission (SFC) is accountable for administering the laws leading the securities and futures markets in Hong Kong and facilitating and encouraging the advancement of these markets. Its regulatory objectives as set out in the SFO are:
 to maintain and promote the fairness, efficiency, competitiveness, transparency and orderliness of the securities and futures industry;
 to promote understanding by the public of the operation and functioning of the securities and futures industry;
 to provide protection for members of the public investing in or holding financial products;
 to minimize crime and misconduct in the securities and futures industry;
 to reduce systemic risks in the securities and futures industry; and
 to assist the Financial Secretary in maintaining the financial stability of Hong Kong by taking appropriate steps in relation to the securities and futures industry.
The SFC is divided into four operational divisions:
The Corporate Finance Division is liable for the dual filing functions in relation to listing matters, administering the Takeovers and Mergers Code and Share Repurchases Code, overseeing the Stock Exchange's listing-related functions and responsibilities, and administering securities and company legislation relating to listed and unlisted companies. The Intermediaries and Investment Products Division is responsible for devising and administering licensing requirements for securities and futures, and leveraged foreign exchange trading intermediaries, supervising and monitoring intermediaries' conduct and financial resources, and regulating the public marketing of investment products. The Enforcement Division is responsible for conducting market surveillance to identify market misconduct for further investigation, undertaking inquiry into alleged breaches of relevant ordinances and codes, including insider dealing and market manipulation, and instituting disciplinary procedures for misconduct by licensed intermediaries. The Supervision of Markets Division is responsible for supervising and monitoring activities of the exchanges and clearing houses, encouraging development of the securities and futures markets, promoting and developing self-regulation by market bodies.
(Introduction to Regulatory Framework: http://www.hkex.com.hk/eng/rulesreg/regintro/introreg.htm)

Complete Case 5-2 on page 195
Discuss at least five characteristics that predict relatively low disclosure levels in Mexico.
1. Sources of finances: The private sector in Mexico has been principally financed by family groups and banks. The particulars are highly associated with low monetary disclosure levels.
2. Government involvement: Even with some newly privatized industries, many of Mexico’s enterprises are still owned by the government. Banks and family groups that conventionally financed the private sector keep close ties with public officials.
3. Level of economic development: Mexico is comparatively less developed than Western Europe or the United States. Being that disclosure typically increases with economic development; this would identify low disclosure in Mexico. (Choi, Frederick D. International Accounting, 6th Edition. Prentice Hall, Chapters 2 and 4)
Discuss characteristics or features that predict relatively high levels of disclosure in Mexico.
1. The historically close connection between Mexican and U.S. accounting professions would encourage disclosure practices in Mexico to emulate those in the U.S., which are the highest in the world.
2. Reduced ownership in economy, reduced government influence in private sectors, and increasing the importance of public equity markets in Mexico all tend toward an increase in financial disclosure.
3. Mexico now looks to the IASB for developing Mexican Accounting Standards.
(Choi, Frederick D. International Accounting, 6th Edition. Prentice Hall, Chapters 2 and 4)
What are some of the recent improvements in these areas in Mexico? All of the features mentioned in Question 2 in the above question are influential in causing improvements in Mexican accounting measurement and disclosure practices. Two specific improvements are the strengthening of the Securities Market Laws penalties for illegal acts and fraud within financial institutions. The second is increased influence of IASB and a closer alignment of Mexican GAAP and IFRS.
(Choi, Frederick D. International Accounting, 6th Edition. Prentice H…...

Similar Documents

Premium Essay

Disclosure Analysis

...Disclosure Analysis Student ACC/422 February 6, 2012 Instructor Disclosure Analysis Paper Companies have many financial reports to reveal to the public every year and quarter. These reports show items such as intangible assets, stockholders equity, and equipment. Financial information reports through the balance sheet, income statement, stockholders equity, and the statement of cash flow. Best Buy’s annual report shows how well the company has been during over the past years and explains cause for changes. Best Buy has seen a decrease in receivables, cash, and cash equivalents over the past few years, yet the merchandise inventory has shown increases. Receivables Best Buy’s receivables consist primarily of amounts due from mobile phone network operators for commissions earned; banks for customer credit card, certain debit card and electronic benefits transfer (EBT) transactions; and vendors for various vendor funding programs (Best Buy, 2011). According to Best Buy (2011), “We establish allowances for uncollectable receivables based on historical collection trends and write-off history. Our allowances for uncollectible receivables were $107 and $101 at February 26, 2011, and February 27, 2010, respectively.” Best Buy has seen a decrease in receivables in the past three years, in fact 2011 saw a 308 million dollar decrease from the prior year (Best Buy, 2011). One possible reason for the decrease may be the economy. Some consumers do not use credit cards for......

Words: 799 - Pages: 4

Free Essay

Financial Reporting Disclosure

..."Financial Reporting Disclosures" Please respond to the following: Discuss the impact of the Sarbanes-Oxley Act (SOX) on financial reporting and disclosure and assess whether or not you believe it helps provide accurate information to users of financial statements. The impact of the SOX act on financial reporting and disclosure is that it is the management’s responsibility on how effective is company’s internal controls. Management cannot pretend that they do not know the imperfections of the company’s financial statements because they must sign annual reports that their company submits to the Security Exchange Commission. This ensures that the financial data is accurate. It made management responsible for financial statements. Inaccurate financial statements can lead to stiff penalties levied on management and others. Section 404 of the SOX act outlines management responsibilities on the annual report. Suggest an alternative to regulation for providing accurate financial information to stakeholders. Large corporations are covered by the SOX act. For small companies, it is difficult to follow the SOX act. If congress can add an amendment for small businesses, it would help small businesses comply with the standards of the SOX act. Schroeder, R., Clark, M., & Cathey, J. (2011). Financial accounting theory and analysis: Text  and cases.(10th ed.). Hoboken, NJ: John Wiley & Sons. U.S. Securities and Exchange Commission. (2008). Final Rule: Management’s......

Words: 547 - Pages: 3

Free Essay

Self Disclosure

...Self-disclosure in Relationships COM200: Interpersonal Communication Andrea Glenn November 4, 2012 . The article, “Can we talk? Researchers talks about the role of communication in happy marriages,” was very informative. This article made some good points about the different types of communication between couples. In this article, research scientist, Terri Orbuch, from the Institute for Social Research at the University of Michigan, gave us a clear definition of the difference between communicating with your spouse and just talking with them. In “Can we talk, researchers talks about the role of communication in happy marriages”, Orbuch says a generalized conversation (sorting out who will pick up the kids, pay the bills or call the grandparents), is not a quality conversation that would take your marriage from good to great (Schoenberg, 2011). Orbuch talks about self-disclosure in a relationship. “Self-disclosure is the process through which you come to know the other person and to know yourself better as well” (Sole, 2011, sec 7-7). I can definitely relate to this article. Terri Orbuch brought up a great idea with her 10 minute quality conversation a day rule. My husband and I have been married for almost 10 years and have 3 wonderful children. We often find ourselves talking more about the days schedule and what we have to do for the kids or the house rather than talking about ourselves and what we like and/or want to do. Just the other day, we......

Words: 497 - Pages: 2

Free Essay

Causal Reasoning in Financial Reporting and Voluntary Disclosure

...Causal reasoning in financial reporting and voluntary disclosure This paper examines causal reasoning, applying the theories to financial reporting. Causal reasoning involves diagnosis (determining the cause of an effect) and prediction (vice versa). These are important and commonplace amongst analysts, investors and management regarding company earnings and share prices. However, there is very little recent research employing causal reasoning theories to this field. Attribution theory describes how causes are attributed to past events. This may be dispositional (attributed to a person) or situational. In a single instance of an outcome, correspondent inference theory suggests diagnosis is based on choice, expectations and intent. Expected, freely chosen behaviour is considered to be dispositional, whereas unexpected, forced behaviour is attributed to situation. Attributing intent is simplest when considering behaviour with only one positive effect. When an outcome occurs numerous times, covariation theory describes possible cause attribution. This involves looking at cases where the suspected cause is present/absent and matching them to instances where the outcome is present/absent, utilising information on consensus (how others behave), distinctiveness (how the individual behaves in different circumstances) and consistency (how the individual has behaved in similar circumstances). Consistency should be high to make a good attribution judgement. When consensus and......

Words: 506 - Pages: 3

Premium Essay

Full Disclosure Financial Reporting Paper

...Heading: Full disclosure financial reporting Full disclosure financial reporting Mary Miller ACC/421 Intermediate Financial Accounting 1 University of Phoenix Cathy Reed October 8, 2012 Full disclosure principle in accounting The full disclosure principle in accounting is the action of revealing or reporting every detail of economic transactions, which can affect the financial position of the business and other people who use the financial statements, such as investor, creditors, etc. (What is the full disclosure principle? web -site). Why has disclosure increased substantially in the last ten years? During the last ten years, the full disclosure increase substantially because the FASB has issued several substantial disclosure provisions, such as Complexity of the Business Environment, Necessity for Timely Information, Accounting as a Control and Monitoring Device with the purpose to protect investors and the public security. Need for full disclosure in financial reporting Full disclosure in financial reporting is necessary because this report reflects the financial activities of the business, if this report is not accurate, and if information omitted or altered affects the decisions of the person using or reading the reports. The government created the SEC and FASB; these two organizations set guidelines to ensure that companies and business disclose the information required by the law. A full disclosure of a......

Words: 825 - Pages: 4

Premium Essay

Rdr Reduced Disclosure Regime

...Subject: Reduced Disclosure Regime (RDR) The purpose of this memorandum is to respond to the company request about a new initiative of the Australian Accounting Standards Board (AASB) known as the Reduced Disclosure Regime (RDR). The following clarifies what RDR is, its purpose, who it applies to, how it fits within the Corporations Act and any adoption issues which could be considered. In summary, the Reduced Disclosure Regime (RDR) has been created to allow for the preparation of less intricate and more useful general purpose financial reports for non-publicly accountable entities through the removal of unnecessary disclosures. It consists of two Australian Accounting Standards AASB 1053 Application of Tiers of Australian Accounting Standards and AASB 2010-2 Amendments to Australian Accounting Standards. These standards indicate the framework for preparation of financial reports and disclosures which may be omitted. Although RDR is expected to be beneficial to preparation of financial reports there are adoption issues surrounding compliance with International Financial Reporting Standards (IFRS). RDR is a direction for reporting entities (not publicly accountable) to prepare general purpose financial reports that are less complex with exemptions of certain disclosures which are deemed unnecessary; without diminishing relevance and increasing the consistency and transparency of information. This is part of a movement to make reports more meaningful and useful to the......

Words: 800 - Pages: 4

Premium Essay

Full Disclosure Paper

...Full Disclosure Paper ACC/421 Full Disclosure Paper Disclosure is information regarding an activity of financial records that creditors, investors, and humans should know what when on in the company or organization regarding the finances increase or decrease. This includes strikes in the company, major fire, theft, a bad product, or a product that is at a high-demand regarding the time of year. Hurricane season in Houston a few years back. The weather reporter states that Houston, Texas is at threat of developing a hurricane, which will hit a specific area. The area has to prepare for the bad storm. The people in the area may have to leave their homes or stay and ride out the storm. The majority the people will go to Lowes or Home Depot to purchase lumber to board up their houses. Some will go to the nearest grocery store to stock up on water, can goods supplies, and items that a person do not have to cook. Others will go the nearest gasoline station to stock up on gas for their cars or generators in case the lights go out. Some go and withdrawal money out of their accounts for the emergency cash. They stated the storm would hit Katy, Texas and head toward Galveston, Texas. This covers a large area. Some people will the full effects of the storm and others just wind. At this time, the stores closed at three o’clock in the afternoon. Gasoline, Wal-Mart, Lowes, and Home Depot sold out of all items need to survive for the storm. Even the fast......

Words: 760 - Pages: 4

Premium Essay

Disclosure Requirement

...From: Boat Cai Subject: key disclosure issues for financial statements [pic] Dear Mr. Bluff As requested, I’ve done a further research on the four items arisen and found out the disclosure requirements for each of them including errors correction, events after reporting date, recognition criteria of provision and classification of financial instruments. I also went through the financial statements and found out some omissions. Finally, due to changes in the operation in our company, I identify some challenges in financial reporting and disclosure. Four key items and their disclosure requirements 1. Correction of errors As you probably know the inaccurate calculation of actuarial loss on defined benefit assets in 2005 would led to overstate plan assets, this would finally affect the recognition of a liability or an asset for superannuation in our financial position in 2005. If the amount of this error is material, it needs to be corrected. The definition of “materiality” is defined in AASB 1031. Due to this error that happened prior to the comparative period, here is some information on changes in errors I would like to mention. With IAS 8, the error must be corrected by both: • Restating comparative amounts in the reporting period which discover the error; • Adjusting the opening amount of financial position in the last reporting period and stating as comparative information (para.42). There is a short list for disclosure requirements for you: ......

Words: 1481 - Pages: 6

Premium Essay

Full Disclosure in Accounting

...Week four Full Disclosure Paper The full disclosure principle in accounting calls for financial reporting of any financial facts significant enough to influence the judgment of an informed reader. Another definition would be the principle under which all material facts (whose non-disclosure may render a financial statement misleading) must be disclosed. For example if by hiding anything in your cash flow statement would be misleading to a potential investor or partner, then you have not fully disclosed all of your financial data. The full disclosure principle states that any and all information that affects the full understanding of a company's financial statements must be included with the financial statements. Some items may not affect the ledger accounts directly. These would be included in the form of accompanying notes. Examples of such items are outstanding lawsuits, tax disputes, and company takeovers. Disclosure has increased because of the complexity of the business environment, the necessity for timely information, and the desire for more information on the enterprise for control and monitoring purposes (Rutgers, n.d., p. 4) The benefit is that an investor can determine the actual taxes paid by the enterprise. Such a determination is particularly important if the enterprise has substantial fluctuations in its effective tax rate caused by unusual or infrequent transactions. In some cases, companies only have income in a given period because of a...

Words: 752 - Pages: 4

Premium Essay

Full Disclosure

...Full Disclosure Principle Generally accepted accounting principles (GAAP) require certain information be disclosed in the audited financial statements of businesses. The full disclosure principle was adopted by the accounting professionals to ensure financial reporting of any financial facts significant enough to influence the judgement of an informed reader;” (Wiley & Sons, 2013). This principle is relevant to materiality and requires the full information be disclosed in the financial statements or in the notes to the financial statements. Need for Full Disclosure Full disclosure in financial report is necessary to help establish consistency in reporting from one company to another. It also standardizes accounting definitions, methods, and assumptions. The full disclosure principle exists to make sure the accounting policies are disclosed so users can understand what the basis of accounting in the company is, what the contingent liabilities are and how the company handled significant events or the details of property, plant and equipment. In short, the full disclosure principle is necessary so investors and other interested parties, who are familiar with reading financial information, have all the information to make informed, sound decisions about the company. The footnotes in the financial statements will disclose accounting policies regarding such things as revenue recognition, property depreciation policies, income tax and inventory accounting practices,......

Words: 849 - Pages: 4

Free Essay

Full Disclosure Paper

...Full Disclosure Full Disclosure is a principle which calls for the reporting of significant financial facts that influence the decisions made by those reading the information (Kieso, 2007). The principle was adopted in 1933 as a byproduct of the 1929 economic crises, and created the full disclosure system. This system provides users of financial statements with material information, greatly improves the timeliness and quality of the disclosed information, reduces costs of raising capital, supports orderly markets, and discourages fraud in the public market. With the creation of the full disclosure principle regulations were formed on the technical and non-technical financial data that have an effect on the financial performance. These regulations have evolved rapidly in the past decade. These changes have been made due to the many examples of inadequate or poor data quality reporting standards that have so greatly affected the economy and the businesses involved. Technology and business have been evolving at a tremendous rate, so the regulations that once worked no longer sufficed. A gap was created between the reporting standards and business activity which resulted in poor economic conditions. The recent economic crisis in 2008 highlighted the need for more transparency if the reporting of financial data and the full disclosure principle. It became clear that as the market evolved, the reporting standards needed to evolve as well. The world is shrinking......

Words: 737 - Pages: 3

Premium Essay

Ifrs Reporting

...Issue: 1a) Are the disclosures in the Swiss annual report really unnecessary? 1b) what social, economic, and institutional factors in Switzerland Might be causing the inclusion of these disclosures? 1c) Describe on of the differences in financial reporting between a Swiss company and the reporting in another country? Facts: Rob Carpenter senior manager at a prestigious accounting firm, recently transferred to the international division of acquisition and mergers. Mr. Carpenter was recently asked to make a recommendation regarding Nestle. Mr. Carpenter unfamiliar with the accounting in Switzerland has realized substantial differences between Swiss and U.S. accounting standards. Surprisingly, there are many “unnecessary” details in Nestle’s annual report including things such as social, environmental and employee disclosures. Furthermore, he notices differences in the financial statements. Mr. Carpenter is in charge of resolving the reports. Analysis: Multiple aspects of accounting and financial reporting affect the international community in different forms particularly in respect to needs of their prospective capital markets. The United States and Canada are equity-oriented markets, in these countries any individual is allowed to invest in the companies. The reports are typically a “public relations document that will present a positive image of the company” (Saudagaran, 2009). This may be a frowned upon practice by some parties but nonetheless its aim is to......

Words: 1852 - Pages: 8

Premium Essay

Intellectual Capital Disclosure

...Intellectual Capital Disclosure Practices and Effects on the Cost of Equity Capital: UK Evidence Researchers: Musa Mangena Richard Pike Jing Li Intellectual Capital Disclosure Practices and Effects on the Cost of Equity Capital: UK Evidence by Musa Mangena Richard Pike Jing Li University of Bradford Published by The Institute of Chartered Accountants of Scotland CA House, 21 Haymarket Yards Edinburgh EH12 5BH First Published 2010 The Institute of Chartered Accountants of Scotland © 2010 ISBN 978-1 904574-14-9 EAN 9781904574149 This book is published for the Research Committee of The Institute of Chartered Accountants of Scotland. The views expressed in this report are those of the authors and do not necessarily represent the views of the Council of the Institute or the Research Committee. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the authors or publisher. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopy, recording or otherwise, without prior permission of the publisher. Printed and bound in Great Britain by T. J. International Ltd. C 1. ontents Foreword ...................................................................................... i Acknowledgements ......................................................

Words: 14662 - Pages: 59

Premium Essay

Pension Plan Disclosure and Reporting Requirement

...MEMORANDUM To: The Chief Executive Officer –ABC Inc. From: Vincent Mokwenye, Financial Controller. Subject: Pension Plan Disclosure and Reporting Requirement CC: This brief memo will address the topic of Pension Plans. Specifically, it shall discuss the two basic types of pension plans and the other postretirement plan. Then it shall examine the purpose of pension plan reporting requirements, their effect on the financial statements, and the significance of each type of pension plan. It will also examine the positive and negative implications of each of the pension plans. Defined Benefit Pension Plan - A defined benefit plan is a retirement plan set up to pay a fixed annual amount to eligible employees during their retirement. It is called defined benefit because the quarterly or annual contribution is based upon an actuarial determination of what the participants' retirement benefits should be, not on profits. The formulas look at how much money must be contributed in order for there to be enough money to pay a FIXED amount of benefit(s) to recipients in the future. These projections use a reasonable expected rate of return (401kpsp.com, 2012). Defined Contribution Plan- A defined contribution plan is a retirement plan that requires that an individual "account" be set up for each participant in the plan. It is called "defined contribution" because a participant can only contribute a fixed maximum amount to the plan each year. The contributions are not......

Words: 1342 - Pages: 6

Free Essay

Full Disclosure

...Full Disclosure August 8, 2012 Organizations and regulators are interested in information made publicly to investors. The form in which the information is presented in financial statements is an important aspect. The full disclosure principle is a tool used to establish how financial information is presented on financial statements. The full disclosure principle in accounting is an important part of financial statements. Full disclosure “calls for financial reporting of any financial facts significant enough to influence the judgment of an informed reader” (Kieso, Weygandt, Warfield, 2010, Chapter 24, pg. 1 para. 3). According to the Generally Accepted Accounting Principles (GAAP), organizations should present an essential statement that identifies the accounting policies embraced and complied by the reporting body (Kieso, et al.). Full disclosure statements should be the first notes compiled on the financial statements. Purposes of the full disclosure principle include: * Provide ethical and honest conduct * Provide accurate and fair disclosures and financial statements * Provide compliance and accountability The full disclosure principle must be exercised to financial officers and executives with justifiable business judgment and faith. The full disclosure principle is not easy to implement in an organization. The full disclosure principle can be costly to an organization, and the benefits are often hard to assess. Disclosure requirements have......

Words: 622 - Pages: 3