1. 1 Matakuliah: F0142/Akuntansi Internasional Tahun: September 2006 Session 05 Reporting and Disclosure

2. 2 Hundreds of companies have increased their disclosures by : –Voluntarily adopting International Financial Reporting Standards (IFRS) or US GAAP. –Complying with domestic and overseas stock exchange and regulatory requirements –Responding to various demands for information from investors and analyst Introduction

3. 3 Development of Disclosure 1. Voluntary Disclosure As investors around the world demand more detailed and timely information, voluntary disclosure levels are increasing in both highly developed and emerging market countries. 2. Regulatory Disclosure Requirements To protect investors, most securities exchanges impose reporting and disclosure requirements on domestic and foreign companies that seek access to their markets. 3. The U.S SEC Financial Reporting Debate SEC requires foreign registrants to furnish financial information substantially similar to that required of domestic companies

4. 4 Reporting And Disclosure Practices Annual report disclosure practice reflect managers’ responses to regulatory disclosure requirement and their incentives to provide information to financial statement users voluntarily.

5. 5 Reporting And Disclosure Practices Disclosures of Forward Looking Information –Considered highly relevant in equity markets worldwide –The EU’s Fourth Directive states that the annual reports should include an indication of the company’s likely future development. –Forward looking information include : Forecasts of revenues, income (loss), EPS and other financial items Prospective information about future economic performance Statement of management’s plans and objectives for future operations

6. 6 Reporting And Disclosure Practices Segment Disclosures –Investors and analyst demand for information about firms’ industry and geographic segment operations and financial results is significant and growing. –International Financial Reporting Standards (IFRS) include highly detailed segment reporting as do accounting standards in many countries –Segment disclosure help financial statements users better understand how the parts of a company make up the whole

7. 7 Reporting And Disclosure Practices Cash Flow and Funds Flow Statements –IFRS and accounting standards in the United States, the United Kingdom and a growing number of other countries require the presentation of cash flow statements. –The cash flow statement is an area where substantial worldwide convergence can be expected Social Responsibility Disclosures –Companies are being called upon to answer to a wide range of “stakeholders”, employees, customers, suppliers, governments, activist groups and the general public who have areas of concern than a company’s ability to create economic value

8. 8 Reporting And Disclosure Practices Special Disclosures for Non Domestic Financial Statement Users and Accounting Principles Used –Annual reports can include special disclosures to accommodate non domestic financial statement users, such as : Convenience restatement of financial statement to a non domestic currency Limited restatements of financial results and position to a second set of accounting standards A complete set of financial statement prepared in conformance with a second set of a accounting principles Discussion of differences between accounting principles used in the primary financial statements and some other set of accounting principles

9. 9 Reporting And Disclosure Practices Corporate Governance Disclosures –Among corporate governance issues are: The right s and treatment of shareholders The responsibilities of the board Disclosure and transparency The role of stockholders –Companies’ corporate governance practices are receiving increasing attention from regulators, investors and analysts.

10. 10 Reporting And Disclosure Practices Internet Business Reporting and Disclosure –The World Wide Web is increasingly being used as an information dissemination channel, with print media often playing a secondary role. –Electronic information dissemination offers the advantage of often being less expensive than use of print media and offers instantaneous communication. –Stock exchanges, regulators and public companies are increasingly using the Internet to provide financial statement users with immediate and low cost access to company information

11. 11 Annual Report Disclosures In Emerging Market Countries Disclosures in annual reports of companies in emerging market countries are generally less extensive and less credible than those of companies in developed countries Low disclosure levels in emerging market countries are consistent with systems of corporate governance and finance in those countries Investor demand for timely and credible information about companies in emerging market countries has been growing, and regulators have responded to this demand by making disclosure requirements more stringent and by stepping up their monitoring and enforcement efforts.

12. 12 Implications For Financial Statement Users And Managers Financial statement users should expect wide variation in disclosure levels and financial reporting practices The requirement to adopt IFRS no later than 2005 will require many European companies outside the United Kingdom to increase their disclosures substantially