Objectives of FS
provide information about financial position, performance and changes in financial position of company
before: financial reporting developed by each country´s standard setting body
now: urge of need for more uniform global financial reporting standards
a) international accounting standard board (IASB)
b) U.S. financial Accounting Standard Board (FASB)
A) Financial Reporting
Standard Setting Bodies
Standards setting bodies (IASB, FASB) are typically private sector organisations
make the rules
Regulatory authorities (security exchange commission (SEC)) or FCA (UK) are governmental entities that have a) legal authority to enforce financial reporting requirements
b) exert control over entities that participate in the capital marketing within their jurisdiction
enforce the rules
International Accounting Standard Board
IASB
independent standard setting body of the IFRS foundation
in charge for developing international financial reporting and acc. Standard
four goals:
- to develop a single set of high quality, understandable, enforceable global accounting standards
- promote the use &rigourous application of those standards
- account of special needs of small/medium size firms and emerging ones
- convergence of national accounting standards with international AS and International Financial Reporting Standards
Financial Accounting Standard Board
is an independent Standard setting body from the FAS foundation in the US (1930)
US GAAP (generally accepted accounting principle) as established bu the FASB is officially recognized as authoritative by the SEC
(but SEC retains the authority to establish standards)
B) Regulatory Authorities
governmental entities that have legal authority to
a) enforce financial reporting requirements
b) exert control over entities that participate in the capital markets within their jurisdiction
E.g. Swiss based companies listed on main board of the Swiss Exchange have to prepare financial statement in accordance with:
- IFRS or US GAAP or Swiss GAAP
B) Regulatory Authorities
international organization of securities commissions
IOSCO
it established objectives and principles to guide securities and capital market regulation
members are securities commission that regulates more than 95% of world´s financial capital markets in more than 115 jurisdictions
core objectives:
- protecting investors
- ensuring that markets are fair, efficient, transparent
- reducing systemic risk
As market has become more global –> higher need to establish comparable financial reporting standards INTERNATIONALLY
B) Regulatory Authorities
Securities Exchange Commission
those companies issuing securities within US, or involve in US market is subject to rules/regulations of US SEC
Significant securities-related legislation
Securities Act of 1933:
- financial info that investor should receive when securities is sold
- requires registration of all public securities
Securities Exchange Act of 1934:
- created the SEC &gave it authority over all aspects of securities industry
Sarbanes-Oxley Act (2002)
- created Pblic COmpany Accounting Oversight Board (PCAOB) to oversee Adittors
- it addresses its independence
- strengthens corporate responsibility fo financial reports
B) Regulatory Authorities
Securities Exchange Commission
SEC Fillings
companies satisfying compliance with these acts principally though competition/ submission of standardised forms issued by SEC
Examples:
- securities Offerings Registration Statement
new issuers or prev. registered bt offering new shares
including:
- disclosures about securities being offered for sale,
- relationship of new securities to issuers
- information typically provided in annual filling
- recent audit financial statements
- risk factors involved in business
- Forms 10-K, 20-F, 40-F
required annually
10-K: for registrants
20-F: for canadian
40-f: for all other non US
info. about business, financial disclosures, legal proceedings, hist. summary of financial data, management discussion and analysis etc.
- annual report
AR to shareholds
overall between company´s annual report and 10-K
- proxy statement/Form DEF.-14A
proxy statement prior to SH meetin
authorisation from sH giving another party the right to cast its vote
includes:
- proposal that require a sH votes, details of ownership by management or principal owners
- biographical info. on directors
- disclosure of executive compensation
- requires companies to provide to shareholders so they can make informed decisions about matters that will be brought up at an annual or special stockholder meeting.
- forms 10-Q and 6-K
quarterly for 10-Q
semiannually on 6-K - non US
includes:
- unaudited financial statements
MD&A for interim period covered by the report
- forms 8-K
report material corporate events on a more current basis
includes:
- announcements of major events (acquisitions or disposal of corporate assets, changes in trading market, corporate governance)
- forms144
should be filled with SEC as notice of the proposed a) sale of restricted securities
b) or securities held by affiliate of issuer in reliance on rule 144 (permits limited sales of restricted securities without registration)
filed by a person who intends to sell either restricted securities or control securities.
Form 144 is notification to the SEC of this intention to sell and must take place at the time the sell order is placed with the broker-dealer
- forms 3,4, and 5
required to report beneficial ownership of securities greater than 10% of a class registered equity securities
form 3 - initial statement
form 4 - reports changes
form5 - annual report
these forms (With 144) can be used to examine purchases and sales of securities by officers, directors, other affiliates of company
-forms 11-K
annual report of employee stock purchase. savings and similar plans
interest to analysts for firms with high employee benefit plans because it contains more information that than disclosed in firms FS
Regulatory Bodies in Europe
each EU member regulated capital market in their jurisdiction
certain regulations adopted at EU level (IFS) form 2005 onwards
EU commission established 2 committees to securities regulation:
a) ESC (Eu Securities committee) = representatives of member states for advising the EU commission on securities policy issues
b) ESMA (Eu securities and market authority) - eu cross-border supervisor to coordinate EU market
Convergence of IFRS Framework
2002: Norwalk Agreement
IASB and FASB pledged to use their best efforts
- to make their existing financial reporting standards fully compatible as soon as practicable
- to coordinate their future work programs to ensure that (once achieved) compatibility is maintained
2004: IASB &FASB agreed that in principle any significant accounting standard would be developed COOPERATIVELY
Further agreements in 2006, 2009 with the objective of achieving convergence in 2011 (postponed)
Initial Financial Reporting Standard Framework
qualitative characteristics
Relevance:
- potentially affect or make diff. in user´s decisions
- information can have predictive or confirmatory value
Faithful representation:
- information that presents an eco. phenomenon with purpose to be ideally complete, neutral and free of error
information doesn´t biased user´s decision
Initial Financial Reporting Standard Framework
Enhancing usefulness
comparability
- information should be presented in a consistent manner over time and between entities
- to enable users to make significant comparisons
verifiability:
- different knowledgeable and independent observers would agree that information presented is correct
timeliness:
- timely information available to decision makers
Understandability:
- info. should be readily understandable by users who have basic knowledge of business, eco. activities, accounting
- who have willingness to study the info. with reasonable diligence.
