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 can’t 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 –Chairperson’s 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