11. Regulatory Reporting and Disclosure from Management's Perspective Pertemuan Matakuliah: Manajemen Kinerja Sistem Komputer Tahun: Feb

11. Regulatory Reporting and Disclosure from Management's Perspective Pertemuan

01. The U.S. Securities and Exchange Commission

Accounting, Auditing, and Disclosure Standards In practice, the SEC has generally not specific accounting practices or auditing procedures. Rather, it haws allowed private standard-setting bodies to determine such methods and procedures. Figure 11.1 Private -Sector financial reporting Standards and Oversight by SEC The SEC's Regulation S-X prescribes the form and content for financial statements filled with the SEC. Regulation S-K was adopted in 1977 to standardize non-financial statement disclosures in SEC fillings.

Going Public Public sale of securities and registration with the SEC allow a business to raise substantial capital and to share risks of ownership with many other investors. The securities allow negotiation without using the company's cash, since the value of the company can be demonstrated through the public markets.

Principal Forms Form 10-K Form 10-Q Form 8-K Form S-1 Form 20-F "No Form" --- Rule 144A

Form 10-K Form 10-K is the primary annual report form for commercial and industrial businesses. In addition to descriptive material about the business, and its financial statements and supplementary data, form 10-K requires "Management's Discussion and Analysis (MD&A) of financial condition and results of operations.

Form 10-Q Registrants are required to file quarterly reports using form 10-Q within 45 days after the end of each of the first three quarters of a fiscal year. Form 10-Q contain two parts, a financial reports and a special events report. Quarterly financial statements are not required to be audited by an independent accountant, but reviews by an independent accountant are required.

Form 8-K When certain specific event occur, disclosure is required on form 8-K. These events include acquisition or disposition of significant assets, sale of equity securities, bankruptcy or receivership, changes in control of the registrant, or resignations of directors.

Form S-1 Form S-1 is the principal form for registration of securities under the Securities Act of Form 20-F Foreign private issuers of securities can register with the SEC by filling form 20-F under either item 17 or item 18.

"No Form" --- Rule 144A Regulation D of the SEC exempts from registration certain sales of securities. While securities issued under Rule 144A do not required that the issuer be an SEC registrant or file financial statements with the SEC, the rule does provide for certain information to be provided to the buyer.

02. Listing Requirements of US Stock Exchanges

Independent Directors Independent ("outside") directors can add credibility for the company in the investment community through their business experience and technical competence.

Audit Committees Since outside directors are not part of management, they are frequently called upon to serve as members of the audit committee of the corporation. In many companies, the audit committee also meets with the internal auditor, and the internal auditor may have a direct link or contact with the chairman of the audit committee. Figure 11.3 shows typical Auditor Communication Links for Public Companies in the United States.

Empirical results In another study of corporate control and AAERs, researchers found a relation between earnings manipulation and the firms' internal government structures. In particular, firms manipulating earnings were more likely to : (1) have boards of directors dominated by management, (2) have a CEO who also chairs the board, (3) have a CEO who founded the firm. There were less likely to : (1) Have an audit committee, (2) Have an outside (non management) holder of a major block of stock.

03. Capital Formation and Mandated Reported Environments

Figure 11.4 As shown in figure 11.4, the legal systems of the two capital formation environments differ, with a common-law tradition in English-speaking countries based on cases that developed over time when one party claimed wrongdoing by another.

Figure 11.5 Figure 11.5 shows a standard audit report in the United Kingdom. This report shares many characteristics with the US reports, with a "true and fair view" being the equivalent of "fairly presents."

Figure 11.6 shows a standard report in Germany.

Empirical Results Accounting Practices across Borders –In a recent study that matched 40 firms each from France, Germany, Japan, The United Kingdom, and the Unites States, researchers compared accounting policy diclosure, certain historical financial reporting such as segment disclosure, and forward-looking information. –All five countries require disclosure of accounting policies but accounting standards vary as to their application in practice. Going-Concern Disclosures across Borders –Going concern disclosures allow communication of uncertainties as of the balance sheet date that affect their interpretation of accounting numbers. –Figure 11.7 summarizes the disclosure results.

Foreign Firms Disclosures in the United States Researchers have compared financial statement disclosure content, frequency, and timing of foreign registrant in the United States with similar US domiciled registrant. As shown in figure 11.8 foreign registrants filling form 10-K parallel the US comparison firms in their disclosure practice, while form 20- F users file their annual reports later, file one interim report rather than three, and disclose annual earnings in the media later.