Financial Reporting Standards

Financial Reporting Standards

1. Standards are underlined by

   • Framework
     • Conceptual Framework for F.R. 2010
       • Objectives of F.R.
         • Provide financial info useful in making decisions about providing resources to the entity
       • Characteristics of F.R.
         • Qualitative
           • Relevance
             • Relevance
             • Materiality
           • Faithful representation
             • Complete
             • Neutral
             • Errorless info
         • Enhacing
           • Additional charac. that enhance usfulness of fin. info
           • Comparability
           • Timeliness
           • Verifability
           • Understandability
           • Constrains against them
             • Cost vs benefits
             • Non quantifiable info omitted
       • Elements of F.R.
         • Related to the measurement of financial position
           • Assets
           • Liabilities
           • Equity
         • Related to measurment of performance
           • Income
           • Expenses
         • Underlying Assumptions
           • Accrual basis
           • Going concern
         • Recognition of them
           • Means that an item is included in the BS or IS
           • An element should be recognised when
             • Probable that any future economic benefit will flow from or to the company
             • It has a measurable cost or value
               • Measurements
                 • Historical cost
                 • Amortised cost
                 • Current
                 • Realizable (settlement) value
                 • Present value
                 • Fair Value
                 • Process of determining the monetary amounts at which the elements are to be recognized
       • General Requirements for F.S
         • International Accounting Standad (IAS) No. 1
           • Specified
             • Required F.S.
               • Balance Sheets
               • St of comprehensive income
               • St. change in equity
               • St. cashflow
               • Notes, summarizing account. policies
             • General Features
             • Structure Content
       • Set the concepts that underlie the prep. and presentation of F.S. for external users

2. Standard- setting bodies

   • Set the
     • Standards
   • International accounting standards boards IASB
     • Process to delibarate, develop & issue IFRS
       • 1. Identify issue as priority
         • 1.1 Place issue on IASB's agenda in consultation w/ Advisory Council
       • 2. Considerring issue and publish exposure draft for public comment
       • 3. Review external input
       • 4. May issue a new or revised IFRS
   • Financial Accounting Standards Boards (FASB)
     • Issues new and revised standards to improve standards of F.R.
       • Done through a process that seeks input from stakeholders
       • Output are in the FASB Accounting Standards Codification
         • Organized by topics
         • Purpose
           • Facilitate researching accounting issues
           • Improve usability of literature
           • Provide accurate updated info on an ongoing basis
           • Help converge effots
   • Desirable attributes
     • Guided by clear framework w/ clear objectives
     • Operate independently
       • Considering input from shareholders
       • Consistent w/ objectives
     • Standards should be in the public interest

3. Regulatory authorities

   • Recognize & enforce
   • International Organization of Securities Commisions (IOSCO)
     • Deliberate a set of obj. & principles of securities regulation
       • Based on 3 obj.
         • Protect investors
         • Ensure that mkt. are fair, efficient & transparent
         • Reducing systematic risk
       • Grouped in 9 categories
         • One of them ("Principle for Issuers")
           • 2 principles related to F.R.
             • There should be full, accurate & timely disclosure of financial results, risk, etc.
             • Accounting standards used by issuers to prepare F.S. should be a high & intenationally acceptable quality
   • Securities & Exchange Comission (SEC)
     • Ordinary member of IOSCO
     • Responsability: securities and mkt regulation in the USA
     • Most significant legislations
       • Securities Act of 1933
         • Specifies financial & other info that investors must receive when securities are sold
         • Prohibits misrepresentations
         • Requires initial registration of all public issuance of securities
       • Securities Act of of 1934
         • Created the SEC
         • Gave the SEC authority over all aspects of securities industry
         • Empowered SEC to require periodic reportings
       • Sabanes- Oaxley Act of 2002
         • Created the Public Company Accounting oversight Board (PCAOB) to oversee auditors
         • Addresses auditor independence
         • Requires management to report effectiveness of internal control
     • Mandates electronic fillings of forms in EDGAR system
     • More common info sources used by analysts
       • Securities Offering Registration Statements
       • Forms 10-K, 20-F, 40-F
         • 10-K USA registrants
         • 20-F non USA
         • 40-F some canediands
         • Requires:
           • Financial disclosures
             • Historical summary of financial data (approx 10)
             • MD&A
             • Audited financial stat.
           • Legal proceeding
           • Management related info
       • Annual repors
         • Company presents itself to shareholders
         • Not required by the SEC
         • hly polished mkting document w/ potos, opening letter from CEO, financial data, mkt segment info, R&D, & goals.
       • Proxy Statements / Form DEF-14A
         • SEC requires it prior shareholders meetings
       • Form 10-Q & 6-k
         • 6-K non USA users
         • For interim periods
         • Requires:
           • Unaudited financial statement
           • MD&A
           • Certain type of nonrecurring events
       • The inbetween periodic reports
         • Form 8k
           • Current reports announcing major events
         • Form 144
           • Proposed sales of restricted securities
         • Forms 3,4&5
           • Report beneficial ownership of securities (for any owners of less than 10%)
             • Initial statements
             • 4: Reports changes
             • 5: Annual report
         • Form 11-k
           • Annual report of employee stock purchase, saving and similar plans
   • Capital Markets Regulation in Europe (EU)
     • Each country regulates its own jurisdiction however some certain regulations are for all
       • Use IFRS as template
         • When IASB issues new standard:
           • 1) European Financial Reporting Advisory Group advises Europpean Commision
           • 2) Standard Adcive Review Group provides opinion on advise
           • 3) Comission takes input and drafts endorstment regulation
           • 4. Accounting Regulatory Comittee votes on proposal
             • If approved, proposal proceeds to European Parlament and the Council of the WU for approval
               • Comittes
                 • European Securities C (ESC)
                   • High-level representation of member states
                   • Advices Comission on securities & policy issues
                 • C of European Securities Regulators (CESR)
                   • Indep. advisory body of rp's of regulatory authorities of member states
                   • Assisst commision w/ tecnical issues
                   • Replaced by European Securities and Market Authority (ESMA)

4. Monitoring developments in Financial Reporting Standards

   • Analyst must be aware that RS evolve rapidly
     • This affects FR
     • So they must monitor 3 areas
       • New Products or Types of Transactions
       • Actions of Standard setters & other groups representing users of F.S.
         • Changes in regulation affect companie's FR and valuation
       • Company Disclosures
         • Provided in the notes
         • Related to Critical & Significant Accounting Policies
         • Disclosures Regarding Changes in Accounting Policies
           • Conclusions about new standard.
             • S. doesnt appy
             • S. will have no material impact
             • Management's still evaluating
             • Impact of adoption is discussed