REVIEW OF PRACTICAL IMPLEMENTATION ISSUES OF
Introduction
Recognizing the significant impact that corporate reporting has on investment decisions, developing countries and countries with economies in transition are placing greater importance on corporate transparency and reporting, and are working to strengthen various components of the accounting infrastructure so that financial resources can be mobilized and used more efficiently. In November 2004, UNCTAD and IFAC signed a Memorandum of Understanding to cooperate more closely in raising awareness of the importance of accounting in economic development and strengthening the accounting profession in developing countries and economies in transition.
Overview of recent trends in the IFRS convergence process
The rationale for convergence
The study included a sample of IFRS-using firms from 23 countries and covered adoption years from 1994 to 2003. To a limited extent, the study also found a decrease in the cost of capital for IFRS adopting entities.9.
Overview of convergence trends
For example, in the European Union, IFRS must be applied to the consolidated financial statements of listed companies. However, EU Member States are authorized to allow such companies to use IFRS in the preparation of their financial statements.
Equivalence to IFRS endorsed by the European Union
In March 2005, the IASB and the Accounting Standards Board held initial discussions on a joint convergence project. In March 2005, the Accounting Standards Board of Canada published the draft five-year strategic plan for comment.
Key issues relating to practical implementation of IFRS
- The scope of application of IFRS
- Institutional issues
- Enforcement issues
- Technical issues
Another indication of increasing emphasis on the issue is a revision of the International Accounting Standards Committee Foundation's constitution. One of the amendments to the constitution issued in July 2005 calls for administrators to have an understanding of and sensitivity to the challenges associated with the adoption and application of IFRS.28.
Preliminary observations on the impact of IFRS on financial statements 19
GUIDANCE ON CORPORATE RESPONSIBILITY INDICATORS IN
- Principal stakeholders and their information needs in the context of
Criteria for the selection of core indicators
Quality characteristics
Materiality depends on the size of the item or error assessed under the particular circumstances of its omission or misrepresentation. The information must be true to and representative of the actual situation in the company; complete within the limits of what is relevant;.
Guiding principles
Constraints on the selection of indicators
The measurement of indicators and the provision of additional information related to indicators should not place an unreasonable burden on enterprises, especially those in the developing countries and in the SME sector. The incremental approach helps address this issue by focusing on indicators that can be derived from data that companies already collect or have access to in the course of doing business, without incurring significant additional costs. If there is an unnecessary delay in the reporting of information, the latter may lose its relevance.
Conversely, if reporting is delayed until all aspects are known, the information may be highly reliable but of little use to users who have had to make decisions in the interim.
Key topics and related indicators
One of the most significant positive economic contributions a company can make to the society in which it operates is the creation of jobs and the payment of wages and other benefits to its employees. The labor productivity of the individual company is an indicator of the company's contribution to the overall economic efficiency and competitiveness of the country where the company operates. Employee health and safety represents one of the most important corporate responsibility issues facing organizations.
Therefore, it is a fundamental indicator of how many members of the value chain are dependent on the focal company.
Conclusion
USERS OF CORPORATE RESPONSIBILITY REPORTING AND THEIR
Stakeholders as users of CR reporting
In the broadest concept, stakeholders are understood as groups of persons who are influenced by the company and/or can influence it, without necessarily having an ownership stake in the company (Freeman, 1984). Most of the studied literature does not distinguish between stakeholders and users of corporate reporting; in practice the two terms are often used interchangeably. Some authors distinguish between stakeholders and users of corporate reports (eg ACCA 2003, Berthoin Antal et al. 2002; Dawkins and Lewis 2003).
Currently, the users of CR reporting mainly include groups already identified as users of annual reports, for example those identified by the International Accounting Standards Board.2.
Categorization of stakeholders
Wheeler and Sillanpäa (1997) present a two-dimensional categorization based on the distinction between primary and secondary stakeholders on the first dimension and the distinction between social and non-social interests on the second dimension (see Table III.2). The WGSR explored the issue of categorizing stakeholders and considered it fundamental to any guidance on social responsibility (ISO, 2005). However, this is a very broad categorization and there is no clarity as to which process a company determines which stakeholder belongs in which category.
Therefore, it was suggested in the WGSR that organizations should disclose the process by which they categorize stakeholders, i.e.
Information needs of stakeholders and the use of information
Conclusion
GUIDANCE ON GOOD PRACTICES IN CORPORATE GOVERNANCE
Financial disclosures
One of the main responsibilities of the Board of Directors is to ensure that shareholders and other interested parties are provided with high-quality disclosures about the financial and operating results of the entity that the Board of Directors has been entrusted to govern. Furthermore, the ad hoc advisory group was of the opinion that the board of directors can enrich the usefulness of the disclosures on the financial and operating results of a company by providing further explanations, for example in the management discussion and analysis section of the annual report, on critical accounting estimates1 of the company, in addition to the disclosures required by applicable financial reporting standards. A description of the board's duties in overseeing the financial statement production process should be provided.
It is generally accepted that the board is responsible for reporting on the company's financial and operational results.
Non-financial disclosures
- Company objectives
- Ownership and shareholder rights
- Changes in control and transactions involving significant assets
- Governance structures and policies
- Members of the board and key executives
- Material issues regarding stakeholders, environmental and social
- Material foreseeable risk factors
- Independence of external auditors
- Internal audit function
Board members and managers must disclose any material interest in transactions or other matters affecting the company. There is also a growing debate about the need for an independent board chairman. The group suggested that conflicts of interest affecting board members should, if not be avoided, at least be disclosed.
Regardless of one's views, all mechanisms for employee involvement in company governance should be clearly disclosed.
General meetings
The audit committee should play a role in establishing a policy on the purchase of non-audit services from the external auditor; this policy must be disclosed together with an explanation or assessment of how this policy adequately ensures the independence of the external auditor (FEE, 2003a). Companies must disclose the scope of work and responsibilities of the internal audit function, as well as the highest level within the leadership of the company to which the internal audit function reports. The scope of work and responsibilities of an internal audit function is often determined by the board of directors (or management board in a two-tier system), typically in conjunction with the audit committee, and can vary significantly depending on the size, structure and complexity of the company and the resources allocated.
When calling the meeting, the company should provide the relevant information about the voting technologies used.
Timing and means of disclosure
These rules may vary in different countries, and therefore disclosure of information on this subject would be useful, especially for foreign investors. The company must disclose all relevant information on the process by which shareholders may submit agenda items, and must disclose which shareholder proposals (if any) have been excluded from the agenda and why. It is considered good practice in most governance systems to allow shareholders to include items on the agenda of a general meeting.
Whatever disclosures are made and whatever channels are used, a clear distinction must be made between audited and unaudited financial information, and means of validating other non-financial information must be provided.
Good practices for compliance
The King II report also emphasizes the need to make critical financial information available to shareholders simultaneously and supports the idea that traditional communication channels need to be supplemented with new tools, such as the Internet.
Conclusions
2005 REVIEW OF THE IMPLEMENTATION STATUS OF CORPORATE
Overview of recent developments in the area of corporate governance
During the ISAR intersessional period, the issue of corporate governance and transparency continued to receive high levels of attention. As this trend deepens, interest in better and better corporate governance disclosure will continue to grow. 7 CFA (2005) Corporate Governance of Listed Companies: A Handbook for Investors, CFA Center for Financial Market Integrity, www.cfainstitute.org.
The technical work of this group will complement the more strategic role in the convergence of business management in Europe carried out by the Forum.
Status of implementation of good practices on corporate governance
- Background and methodology
- Main outcomes of the survey: overview of all disclosure items
- Comparison of disclosure items between internationally listed
- Comparison of disclosure items between enterprises from high-
- Special focus: state-owned enterprises (SOEs)
A short list of the most common and least common items is given in Table V.2. Of the ten new disclosure items added to the 2005 survey, eight were submitted by more than 50 percent of the enterprises surveyed. Only two of the additional disclosure items (anti-takeover measures; and 'whistleblower' protection policy) are among the least prevalent disclosure items discussed above.
As indicated in figure V.2 above, almost all the SOEs in the survey were from low- or middle-income countries (23 out of 27).
Conclusions
CORPORATE REPORTING: SELECTED ISSUES
Revenue recognition: content and application of IAS 18 – Revenue and
- Introduction
- Revenue recognition according to IAS 18
- Construction contracts (IAS 11)
- Conceptual problems and current discussion
- Summary
If the criteria are met, revenue is recognized based on the stage of completion of the transaction on the balance sheet date. According to IAS 18.23, the need for such revisions does not necessarily mean that the outcome of the transaction cannot be estimated reliably. According to IAS 18.27, during the early stages of a transaction it is often the case that the outcome of the transaction cannot be reliably estimated.
In cases where the outcome of the transaction cannot be reliably estimated, no profit is recognized.
Fair value measurement issues
- Current use of fair values under International Financial Reporting
- Methods to determine a fair value
- Recent developments related to fair value measurement
- Fair value measurement — methods and problems
- Some concluding remarks
Under the fair value concept, the markets' perspective of the present value of the future cash flows is used. In 2004, IFRS 2 was published, the standard that requires share-based payments to be measured at fair value. In this situation, the fair value is a hypothetical amount – the transaction price on which two parties would agree.
The paper contains an in-depth analysis of fair value as a measurement basis at initial recognition.
