Your SlideShare is downloading. ×
0
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
International Accounting and Financial Reporting
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

International Accounting and Financial Reporting

511

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
511
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
10
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. International Accounting and Financial Reporting Summer 2007 William F. O’Brien, MBA, CPA
  • 2. Session III-A International FSA
  • 3. Session III-A Objectives <ul><li>Revisit MGM </li></ul><ul><li>Revisit Reporting Levels </li></ul><ul><li>General FSA considerations </li></ul><ul><li>International FSA challenges </li></ul><ul><li>Major GAAP differences </li></ul><ul><li>Index of conservatism </li></ul>
  • 4. MGM’s Classifications <ul><li>British-American-Dutch (B.A.D.) </li></ul><ul><li>Continental </li></ul><ul><li>South American </li></ul><ul><li>Mixed Economy </li></ul><ul><li>Socialist </li></ul><ul><li>Islamic </li></ul>
  • 5. Six Levels of Foreign Reporting <ul><li>Do-Nothing </li></ul><ul><li>Convenience translation (Japan) </li></ul><ul><li>Currency restatement </li></ul><ul><li>GAAP disclosure </li></ul><ul><li>Partial restatement </li></ul><ul><li>Full restatement </li></ul>
  • 6. The 3 P’s <ul><li>Preparation </li></ul><ul><li>Processing </li></ul><ul><li>Presentation </li></ul>
  • 7. Reasons for Analysis <ul><li>Investment decisions* </li></ul><ul><li>Credit decisions* </li></ul><ul><li>Performance* </li></ul><ul><li>Valuation (investment) </li></ul><ul><li>Legal liability amount (credit & perf.) </li></ul><ul><li>Going concern decisions (credit & perf.) </li></ul><ul><li>Unreasonable returns (performance) </li></ul>
  • 8. Traditional FSA Methods <ul><li>Index analysis </li></ul><ul><li>Trend analysis </li></ul><ul><li>Percentage analysis </li></ul><ul><li>Comparative analysis </li></ul><ul><li>Horizontal analysis </li></ul><ul><li>Vertical analysis </li></ul><ul><li>Use of critical ratios </li></ul>
  • 9. Typical Ratio Classifications <ul><li>Liquidity and solvency ratios </li></ul><ul><li>Efficiency or performance ratios </li></ul><ul><li>Profitability ratios </li></ul><ul><li>Coverage or leverage ratios </li></ul><ul><li>Key Financial Statement Ratio handout </li></ul>
  • 10. FSA Cautions <ul><li>General </li></ul><ul><ul><li>Numerator and denominator content </li></ul></ul><ul><li>Comparative issues </li></ul><ul><ul><li>Timeliness </li></ul></ul><ul><ul><li>GAAP alternatives </li></ul></ul><ul><ul><li>Management aggressiveness/pro-forma stmts. </li></ul></ul><ul><ul><li>“Just win, baby” attitude </li></ul></ul><ul><ul><li>Size </li></ul></ul><ul><ul><li>Geographic span of operations </li></ul></ul>
  • 11. Other F/S Considerations <ul><li>Quality of Earnings/Transparency </li></ul><ul><li>Measurement Bias </li></ul><ul><li>Management Bias </li></ul>
  • 12. Quality of Earnings Issues <ul><li>Non-recurring items…sustainability </li></ul><ul><li>Essentially we are trying to determine if what is reported is going to recur in the future. </li></ul>
  • 13. Sustainability Issues <ul><li>Discontinued operations </li></ul><ul><li>Extraordinary gains and losses </li></ul><ul><li>Changes in accounting principles </li></ul><ul><li>Impairment of long-lived assets </li></ul><ul><li>Restructuring charges </li></ul><ul><li>Changes in estimates </li></ul><ul><li>Peripheral gains and losses </li></ul>
  • 14. Sources of Information <ul><li>Annual Report </li></ul><ul><li>Form 10-K </li></ul><ul><li>Form 10-Q </li></ul><ul><li>Form 8-K </li></ul><ul><li>Prospectus </li></ul><ul><li>Form 20-F (foreign entity 10-K) </li></ul><ul><li>SEC’s EDGAR service </li></ul>
  • 15. International FSA Challenges <ul><li>Risk of applying home country perspective </li></ul><ul><li>Risk of failure to understand the local reporting context </li></ul><ul><li>Risk associated with diverse GAAP and economics </li></ul>
  • 16. Major GAAP Differences <ul><li>PPE </li></ul><ul><li>Depreciation </li></ul><ul><li>R&D costs </li></ul><ul><li>Borrowing costs </li></ul><ul><li>Exchange rates </li></ul><ul><li>Pensions </li></ul><ul><li>Income Taxes </li></ul><ul><li>Goodwill </li></ul><ul><li>Intangibles </li></ul>A detailed discussion of these differences is beyond the scope of this class. Research is required for each specific application of GAAP.
  • 17. Index of Conservatism <ul><li>1 – Home GAAP – Local GAAP </li></ul><ul><li>Home GAAP </li></ul><ul><li>Less conservative = greater than 1 </li></ul><ul><li>More conservative = less than 1 </li></ul><ul><li>Partial index can be calculated for components </li></ul>
  • 18. Global Earnings Measurement <ul><li>UK…higher, therefore, less conservative vs. US </li></ul><ul><li>Continent…lower, therefore, more conservative </li></ul><ul><li>Japan…lower, therefore, more conservative </li></ul><ul><ul><li>Often biased by formal debt…context issue </li></ul></ul>
  • 19. Reasons for Measurement Differences <ul><li>Driven by environmental and social values </li></ul><ul><li>Revisit Hofstede and Bond and Gray </li></ul>
  • 20. Global Accounting Convergence <ul><li>Single standard </li></ul><ul><li>Harmonization </li></ul><ul><li>Convergence </li></ul><ul><li>IASC (1973); now IASB </li></ul><ul><li>IOSCO role </li></ul>
  • 21. Key Points-Session III-A <ul><li>Follow basic FSA considerations </li></ul><ul><li>Note the contextual factors </li></ul><ul><li>Be aware of conservatism biases </li></ul><ul><li>Note the challenges that remain with respect to convergence </li></ul><ul><li>Remember the importance of enforcement and the legal system </li></ul>
  • 22. Session III-B International Disclosure
  • 23. Session III-B Objectives <ul><li>Revisit Reporting Levels </li></ul><ul><li>Transparency Concepts </li></ul><ul><li>Disclosure Concepts </li></ul><ul><li>Disclosure Trends—Overview only </li></ul><ul><li>Reporting Summary </li></ul><ul><li>Frequency of Reporting </li></ul>
  • 24. Six Levels of Foreign Reporting <ul><li>Do-Nothing </li></ul><ul><li>Convenience translation (Japan) </li></ul><ul><li>Currency restatement </li></ul><ul><li>GAAP disclosure </li></ul><ul><li>Partial restatement </li></ul><ul><li>Full restatement </li></ul>
  • 25. Transparency <ul><li>Looking through the numbers to see reality </li></ul><ul><li>What you see is what you get--WYSIWYG </li></ul><ul><li>What is. Is! </li></ul><ul><li>Investor confidence </li></ul>
  • 26. Disclosure <ul><li>Overload? </li></ul><ul><li>Essential </li></ul><ul><li>More disclosure leads to more disclosure </li></ul><ul><li>Recall the financial accounting model </li></ul><ul><ul><li>Useful and relevant information </li></ul></ul>
  • 27. Disclosure Incentives and Disincentives <ul><li>Incentives </li></ul><ul><ul><li>Lower cost of capital </li></ul></ul><ul><ul><li>Compliance </li></ul></ul><ul><li>Disincentives </li></ul><ul><ul><li>Competitive disadvantage </li></ul></ul><ul><ul><li>See Exhibit 6.1 </li></ul></ul><ul><li>General issues </li></ul><ul><ul><li>4 th & 7 th Directives </li></ul></ul><ul><ul><li>Research inconsistencies </li></ul></ul>
  • 28. Reporting Trends <ul><li>Corporate Review </li></ul><ul><ul><li>Chairman’s statement </li></ul></ul><ul><ul><li>Strategy review </li></ul></ul><ul><ul><li>Unusual information </li></ul></ul><ul><ul><li>M & A information </li></ul></ul><ul><ul><li>H/R information </li></ul></ul><ul><ul><li>Social responsibility information </li></ul></ul><ul><ul><li>R & D information </li></ul></ul><ul><ul><li>Investment information </li></ul></ul><ul><ul><li>Future information </li></ul></ul><ul><li>Operations Review </li></ul><ul><ul><li>MD&A </li></ul></ul><ul><ul><li>Disaggregated analysis </li></ul></ul><ul><li>Financial Review </li></ul><ul><ul><li>Results </li></ul></ul><ul><ul><li>Liquidity and capital resources </li></ul></ul><ul><ul><li>Asset valuations and inflation </li></ul></ul>
  • 29. Frequency <ul><li>EU directive: every six months </li></ul><ul><li>IASB: IAS 34—content only discussed </li></ul>
  • 30. Key Points-Session III-B <ul><li>Transparency is important </li></ul><ul><li>Enforcement is not universal </li></ul><ul><li>Information goes far beyond the basic financial data </li></ul><ul><li>Frequency varies from the U.S. </li></ul>
  • 31. Session III-C Convergence
  • 32. Session III-C Objectives <ul><li>Pressures and Participants for Convergence </li></ul><ul><li>Key Directives </li></ul><ul><li>International Standard Setting </li></ul><ul><li>Challenges Remain </li></ul>
  • 33. Pressures & Participants <ul><li>Governments </li></ul><ul><ul><li>Flow of capital </li></ul></ul><ul><ul><li>Business growth </li></ul></ul><ul><ul><li>Regional disadvantages </li></ul></ul><ul><li>Trade unions & employees </li></ul><ul><ul><li>Consequences of transfer pricing </li></ul></ul><ul><ul><li>Impact on future operations </li></ul></ul><ul><li>Investors & analysts </li></ul><ul><ul><li>Information comparability </li></ul></ul><ul><li>Bankers </li></ul><ul><ul><li>Transparency with respect to solvency </li></ul></ul><ul><li>Accounting professionals </li></ul><ul><ul><li>Compliance </li></ul></ul><ul><ul><li>Ease of implementation </li></ul></ul>
  • 34. Key Directives <ul><li>Grounded in laws of member nations </li></ul><ul><li>4 th </li></ul><ul><ul><li>Disclosure and presentation of financial information </li></ul></ul><ul><li>7 th </li></ul><ul><ul><li>Elements of consolidated financial statements </li></ul></ul><ul><li>8 th </li></ul><ul><ul><li>Qualification and work of auditors </li></ul></ul>
  • 35. International Standard Setting <ul><ul><li>IAS Committee Foundation (Trustees) </li></ul></ul><ul><ul><li>IASB (2000) </li></ul></ul><ul><ul><ul><li>14 Members </li></ul></ul></ul><ul><ul><ul><li>UK-3; US & Canada-3 </li></ul></ul></ul><ul><ul><ul><li>Prof. Mary Barth from Stanford </li></ul></ul></ul><ul><ul><li>Refer to www.iasb.org for current standards </li></ul></ul><ul><ul><li>IFRS and US GAAP </li></ul></ul><ul><ul><ul><li>Reconciliation to US GAAP required </li></ul></ul></ul><ul><ul><ul><li>Current convergence project underway </li></ul></ul></ul>
  • 36. IFRS-FASB Convergence <ul><li>Benefits </li></ul><ul><ul><li>Increased capital market efficiency </li></ul></ul><ul><ul><li>Reduced administrative burdens </li></ul></ul><ul><ul><li>Access to capital outside of home market </li></ul></ul>
  • 37. Challenges Remain <ul><li>Quality issues surrounding use, interpretation and enforcement </li></ul><ul><li>Rules-based versus principles based foundation </li></ul><ul><ul><li>What about legal bright lines? </li></ul></ul><ul><li>Lack of broad IFRS compliance </li></ul><ul><li>Some believe a global commitment is not in place </li></ul><ul><ul><li>Differences based on local needs will continue </li></ul></ul><ul><ul><li>Complexity of accounting and operations is growing </li></ul></ul><ul><ul><li>Significant research is needed </li></ul></ul>
  • 38. Key Points-Session III-C <ul><li>Increasing pressure for convergence </li></ul><ul><li>Participants have varied interests in convergence </li></ul><ul><li>Development of converged standards is a political process </li></ul><ul><li>Significant issues remain </li></ul>

×