International Corporate Reporting

Global and Diverse

Pauline Weetman, Ioannis Tsalavoutas, Paul Gordon

• Publisher: Routledge
• Year: 2020
• ISBN:
  9780429774607
• Edition: 5
• Topic: Business
• Subtopic: Financial Accounting
• Index: Business

This textbook provides a comprehensive overview of international corporate reporting which enhances students' understanding of diversity and convergence in the field.

The authors discuss the institutional and cultural context in which international corporate reporting has developed over the years as well as the global reach of IFRS Standards from the IASB throughout and beyond the European Union, into interest groups and emerging economies. Other key elements explored throughout the book include assurance through auditing and corporate governance, narrative reporting, strategic and corporate social responsibility, group accounting, current accounting issues and taxation in corporate reports. Indicative research examples show how the methods used in research papers may be understood and applied. Case studies outline short projects based on corporate cases, with related links to material on corporate websites. Helpful and reliable sources of information and data are identified through hyperlinks to accessible websites. End-of-chapter questions encourage discussion of the main issues. Throughout there is a focus on accountability and the information needs of stakeholders.

This new edition of a classic text is fully revised and updated in order to remain essential reading for students of international accounting and corporate reporting globally. The book will be an invaluable resource for postgraduate taught programmes and final-year undergraduate courses in accounting, finance and business studies.

PART I

Institutions, culture and research methods

CHAPTER 1

Global corporate reporting

Contents

Learning outcomes

1. 1.1 Current trends in global corporate reporting
2. 1.2 Overview of corporate reporting
3. 1.3 Our approach in this book
4. 1.4 The language we use
5. 1.5 Establishing global authority in corporate reporting
6. 1.6 Challenging globalisation
7. 1.7 Summary and key points
8. Questions
9. References

Learning outcomes

After reading this chapter you should be able to:

• Discuss current trends in global corporate reporting.
• Define and explain the main components of corporate reporting, including assurance.
• Discuss the benefits and limitations of studying and researching in the English language.
• Discuss ways in which global authority over corporate reporting may be established.
• Discuss the challenges to globalisation of corporate reporting.

1.1 Current trends in global corporate reporting

The strongest trend in global corporate reporting of recent years has been the increasing emphasis on reporting corporate social responsibility (CSR), to the point where high-quality CSR information is seen as essential by those evaluating investment possibilities. Information about accountability to society, communities, employees, customers and the public interest is now seen as an indispensable feature of global corporate reporting. It is a part of the wider focus on narrative reporting to explain the activities of the business in terms of its effect on society and its contribution to sustainability of the planet. There has been a proliferation of international organisations setting principles, standards and guidelines for reporting aspects of CSR.

The International Financial Reporting Standards (IFRS Standards) governing the financial statements have matured over 20 years since the International Accounting Standards Board (IASB) began its work in 2000 (building on and incorporating the International Accounting Standards (IAS Standards) established by its predecessor the International Accounting Standards Committee (IASC) from 1973). Assurance has been enhanced through developments in corporate governance and auditing. These remain a focus of concern, particularly when businesses fail unexpectedly, but the exciting issues in global corporate reporting are found in the narrative reports of management strategy and in the CSR reports. There have also been demands for those who govern companies to give much more narrative description of the business strategy and how that strategy is achieved.

When the International Organization of Securities Commissions (IOSCO) made the significant decision to endorse IAS Standards in 2000 for use in members’ stock exchanges,¹ in order to facilitate cross-border offerings and listings by multinational enterprises and to promote further development of internationally accepted accounting standards, it opened the door to acceptance of global accounting standards set by the IASB. (IOSCO recommended that its members allow multinational issuers to use IAS Standards, as supplemented by reconciliation, disclosure and interpretation where necessary to address outstanding substantive issues at a national or regional level.) The IASB then faced the challenge of establishing confidence in its independence as a standard setter, while having no direct powers of enforcement or scrutiny. In the period from 2000 to 2005 the IASB revised several standards to meet the requirements of IOSCO and also agreed to maintain a ‘stable platform’ of standards² to gain the support of the European Union (EU) in endorsing IFRS Standards for use in the EU. In 2006 the IASB announced³ that 2009 would be the first date of required implementation of any new standards. That would provide countries yet to adopt IFRS Standards with a clear target date for adoption and would also provide four years of stability in the IFRS-based platform of standards for those companies that adopted IFRS Standards in 2005.

The IASB and the legislators of the EU and the US began using the language of ‘convergence’ while preserving their respective territorial positions. In particular, in 2007 the SEC in the US removed the requirement for European companies to reconcile IFRS-based financial statements to US generally accepted accounting principles (US GAAP) when reporting to US stock markets. There was a period, up to 2010, when progress was made in discussions between the IASB and the US Financial Accounting Standards Board (FASB) to further converge their accounting standards. Tensions were always present. The European Commission retained its right of political control over the legal process across member states. The Securities and Exchange Commission (SEC) in the US demanded reassurance about mechanisms for enforcement of high-quality international accounting standards that would retain a level playing field for US companies. Since 2010 it has become apparent that the IASB and FASB continue to develop two distinct sets of accounting standards, although much more closely aligned as a result of the years of convergence activity.

To compare the use of IFRS Standards and US GAAP, Exhibit 1.1 summarises the country of registration of the largest 100 companies by market capitalisation in 2018. Of these, 55 companies reported their financial results using US GAAP, 28 reported their financial results under IFRS Standards and 17 applied their own national accounting standards, all of which have made substantial progress on convergence with IFRS Standards. This appears to indicate an evenly spread influence of US GAAP and IFRS Standards but the US regulatory influence on corporate reporting extends to narrative reports (see Chapters 12 and 17) of foreign issuers listed on US markets. Of the 46 non-US companies, 22 are listed on the NYSE and another 14 have their shares traded on the OTC market in the US.

Exhibit 1.1 Top 100 global companies 2018 based on market capitalisation

	Number	Note
US	54	1
EU (with UK)	18	2
China (with Hong Kong)	14	3
Asia Pacific excluding Japan and China	5	4
Europe non-EU	3	5
North America excluding US	2	6
Middle East and Africa	2	7
Japan	2	8
Total	100

Note 1 US companies follow US GAAP (see Chapter 17); 43 are listed on the NYSE and 11 (including the top 4) on NASDAQ.

Note 2 EU listed companies apply IFRS Standards (see Chapter 6).

Note 3 In mainland China and Hong Kong, listed companies apply national accounting standards that are largely converged with (or based on) IFRS Standards (see Chapter 18).

Note 4 This category includes two Indian companies and one each from Taiwan, South Korea and Australia.

Taiwanese listed companies have a choice of using Full IFRS Standards or IFRS Standards as modified by national standards board. The company in this sample has applied full IFRS Standards. South Korean listed companies are required to use K-IFRS (similar to IFRS Standards but with some timing differences). Australian and Indian companies must apply their respective national accounting standards. Australian standards are largely identical to IFRS Standards; those of India are based on IFRS Standards but retain some significant differences from IFRS Standards (for India, see Chapter 9).

Note 5 Swiss listed companies are required to prepare their financial statements using either IFRS Standards or US GAAP. The three non-EU Swiss companies each apply IFRS Standards.

Note 6 Both are Canadian companies. The Canadian Accounting Standards Board requires domestic listed companies to use IFRS Standards.

Note 7 One is a Saudi Arabian company and one is a South African company. Both countries require domestic listed companies to apply IFRS Standards.

Note 8 In Japan, domestic listed companies have a choice of financial reporting standards to apply (see Chapter 19). Of the two companies in this sample, one adopts US GAAP (Toyota) and one applies IFRS Standards (Softbank).

Extracted from: www.pwc.com/gx/en/services/audit-assurance/publications/global-top-100-companies-2018.html

Exhibit 1.2 Top 500 global companies 2018 based on revenue

Country/Region	Number of companies	As a percentage
US	126	25.2%
EU (with UK)	122	24.4%
China (with Hong Kong)	111	22.2%
Japan	52	10.4%
Asia Pacific excluding Japan and China	44	8.8%
Europe non-EU	20	4.0%
North America excluding US	16	3.2%
South America	7	1.4%
Middle East and Africa	2	0.4%
Total	500	100.0%

Source: https://fortune.com/global500/

Researchers in corporate reporting will often determine their sample based on a size criterion. In Exhibit 1.1, using market capitalisation, the US companies dominate. As an alternative, Exhibit 1.2 uses annual revenue as the measure of size. Here US companies are less significant and the proportion of companies from other parts of the world increases.

While convergence in accounting standards was taking place in the late 1990s and early 2000s, there were many other activities contributing to trends of convergence in global corporate reporting. Assurance took on a larger profile, particularly as a result of the South-East Asian economic crisis starting in 1997 and the global financial crisis of 2007–2008. Corporate governance took on a higher profile, either through the introduction of corporate governance codes (see Chapter 11), supported by stock exchange enforcement, or through corporate legislation (for example in the US, see Chapter 17 Section 17.3.4). There has been a tendency, on the part of those who provide finance and resources to business, to assume that co...