Accounting 4570/5570

1
Accounting 4570/5570

• Chapter 6 - International Transparency and
  Disclosure

2
Transparency

• The widespread availability of relevant,
  reliable information about the period
  performance, financial position, investment
  opportunities, governance, value, and risk of
  publicly traded firms. Bushman and Smith
  (2003, p. 76)
• Two kinds of transparency
• Financial corporate disclosures, timeliness,
  analyst following, and media development
• Governance

3
Pressures for Information Disclosure

• Demands
• Increased availability
• Increased quality
• More information supplied, the more people want
• Demand for specialized information
• Tension between the need for more information and
  the complexity introduced by distributing more
  information
• Trend toward greater accountability

4
Disclosure in Corporate Reports

• Importance of information disclosures
• Managerial incentives to voluntarily disclosure
  information
• Lower cost of capital
• More investors
• Reduction in uncertainty about financial
  performance

5
Disclosure in Corporate Reports

• Reasons for Resistance
• Information overload
• Investors cant understand information
• Costs
• Direct cost of compiling
• Cost of auditing information
• Competitive disadvantage
• More specific and future oriented the
  information, the less likelihood of disclosure
• Costs from interference or regulation by
  governments.

6
Disclosure in Corporate Reports

• Managerial Attitudes to Voluntary Disclosures
• Benefits must exceed costs
• More likely to voluntarily disclose
  noncompetitive disclosures
• All corporations disclose more information than
  required
• Specific disclosures (Exhibit 6.2, page 132)

7
Disclosure in Corporate Reports

• Largest MNEs set trends in disclosing information
• Larger companies tended to voluntarily disclose
  more information
• Disclosure varies by industry
• Companies from common law countries tended to
  disclose more information than civil code
  countries.
• Corruption decreased the likelihood of
  disclosure.
• European companies disclose a lot of nonfinancial
  information especially environmental and
  employee information

8
Disclosure Regulation

• New York Stock Exchange requires the most
  financial disclosures London Stock Exchange
  second, Swiss Stock Exchange least disclosures
  (due to secrecy).
• More developed stock exchanges tend to require
  more financial disclosures

9
International Disclosure Regulation and Reporting
Trends

• Corporate Review
• Chairpersons statement
• Corporate strategy and results
• External and unusual events
• Acquisitions and disposals information
• Human resources information
• Value-Added information
• Social responsibility information
• Research and development information
• Investment program information
• Future prospects information

10
International Disclosure Regulation and Reporting
Trends

• Operations Review
• Review of business segments
• Review of international operations and
  geographical segments
• More detailed discussion and analysis of
  operations

11
International Disclosure Regulation and Reporting
Trends

• Financial Review
• Analysis of results
• Analysis of liquidity and capital resources
• Analysis of asset values and inflation
• Timeliness of Reporting
• Quarterly reporting required in U.S. and Canada
  but rare elsewhere
• IAS 34 only requires interim reporting but does
  not state frequency

12
Case Assignment

• Infosys Technologies (India)
• Stora Enso and the Versel Vision A Model of
  Sustainability