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Reporting and Disclosure

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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. (
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.
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 ( 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:

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…...

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