International Accounting and Financial Reporting

543
-1

Published on

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

  • Be the first to like this

No Downloads
Views
Total Views
543
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
10
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

International Accounting and Financial Reporting

  1. 1. International Accounting and Financial Reporting Summer 2007 William F. O’Brien, MBA, CPA
  2. 2. Session III-A International FSA
  3. 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. 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. 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. 6. The 3 P’s <ul><li>Preparation </li></ul><ul><li>Processing </li></ul><ul><li>Presentation </li></ul>
  7. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 22. Session III-B International Disclosure
  23. 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. 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. 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. 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. 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. 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. 29. Frequency <ul><li>EU directive: every six months </li></ul><ul><li>IASB: IAS 34—content only discussed </li></ul>
  30. 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. 31. Session III-C Convergence
  32. 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. 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. 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. 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. 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. 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. 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>
  1. A particular slide catching your eye?

    Clipping is a handy way to collect important slides you want to go back to later.

×