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REGULATION OF FINANCIAL STATEMENTS.
Term Paper ID:29003
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Essay Subject:
Centers on the United Kingdom (UK).... More...
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5 Pages / 1125 Words
7 sources, 12 Citations,
APA Format
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Paper Abstract:
Centers on the United Kingdom (UK). Discusses several issues in regulating financial statements of publicly traded companies. Perception that statements issued by some publicly traded companies are not accurate. Appropriateness of mandating corporate disclosure by law. Objectives of corporate disclosure. Relevance to the securities investment process. Regulation as a tool, not an end in itself.
Paper Introduction:
CONSIDERATION OF CALLS FOR THE REGULATION OF FINANCIAL STATEMENTS PREPARATION IN THE UNITED KINGDOM
This research considers the desirability of the regulation of financial statements issued by publicly traded companies in the United Kingdom (UK). The issue of regulation arises from perceptions that statements issued by some publicly traded companies are not reliable and accurate (Clatworthy & Jones, 1999).
The prime issue involved in considerations of the reliability and validity of financial statements issued by publicly traded companies is whether the reports present accurate and fair representations of the financial performance and financial position of reporting companies (Committee on the Financial Aspects of Corporate Governance, 1992). The basis for accur
Text of the Paper:
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(2 1, March). 3 ). (1997, March-April). European Business Journal,12(3), 116-134. In actuality, the requirement of disclosure is, in itself, aform of protection (Meek, Roberts, & Gray, 1995). A. Suggested regulation inthis area would require disclosure to the public and to the investor of thepotential impact on the operations and assets of a corporation of priceinflation, as well as mandating disclosure of the information delineated inthe preceding paragraph (Clatworthy & Jones, 1999). The prime issue involved in considerations of the reliability andvalidity of financial statements issued by publicly traded companies iswhether the reports present accurate and fair representations of thefinancial performance and financial position of reporting companies(Committee on the Financial Aspects of Corporate Governance, 1992). andcontinental European multinational corporations. Generally desired elements of corporatedisclosure statements include information pertaining to the followingconcerns: > The relationship between the management of a publicly traded company and its auditors; > The nature of relationships between a publicly traded company of its shareholders; > Institutional investment relationships; > Proxy requirements; > Board and committee composition; > Compensation for the board of directors; and > Management compensation, including all perks. National Public Accountant, 42(2), 29-34. Financial disclosure is desirable because financial statements and thedisclosure of other information relevant to these statements are central tothe securities investment process. J. Another motiveis a desire to either maintain or create a demand for a company's stock, sothat management can dump the stock, before any adverse information aboutthe company surfaces (Monks, & Minow, 1995). Norburn, D., Boyd, B. 6). Committee on the Financial Aspects of Corporate Governance. Foster, P. The Company Act in the UK already mandates the disclosureof some forms of information in financial reports. Hundreds of millions of dollars have beeninvolved in some individual cases" (Weisenborn & Norris, 1997, p. 3 ). Periods of fiscal turmoil and economicdifficulties which tend to produce troubled debt also tend to spawn abusesand deceptions among members of the business and financial communities.The motives for a failure to disclose financial information are numerous.Frequently, there is a desire to create an appearance of financialstability and prosperity in situations where stability and prosperity donot exist or where the situation is such that those conditions may notexist in the near future (Crane, 1993). Thebasis for accurate and fair representations of financial performance andfinancial position is corporate disclosure (Foster, 2 1). Corporate governance. Accountancy, 112, 95-96. Thepurpose is to assure the public availability in an efficient and reasonablemanner on a timely basis of reliable, firm-oriented information material toinformed investment, and corporate suffrage decision-making. company information.Online, 25(2), 33-37. Tracking down U.K. Another argument for the regulation of financial statement disclosureis that global financial markets are integrating rapidly into a singlefinancial marketplace. The Cadbury Report recommended that disclosure should besufficient to provide an accurate and fair report of financial performanceand financial position while not cluttering financial statements with somuch information that they lose their utility because they are no longerreadable (Committee on the Financial Aspects of Corporate Governance,1992). consideration of calls for the regulation of Financial Statements preparation in the United Kingdom This research considers the desirability of the regulation offinancial statements issued by publicly traded companies in the UnitedKingdom (UK). The arguments favoring regulation of financial statement disclosure toassure accurate and fair reporting are strong. Corporate disclosure varies. Behind the basic reason for a failure to disclose financialinformation are diverse motives. References Clatworthy, M., & Jones, M. (1995, Fall). The issue of regulation arises from perceptions thatstatements issued by some publicly traded companies are not reliable andaccurate (Clatworthy & Jones, 1999). G., & Minow, N. Crane, M. B., & Gray, S. British companies, according to this line ofargument will find themselves at a disadvantage is their corporatedisclosure practices are less stringent than those observed by publiclytraded companies based in other developed economies (Norburn, Boyd, Fox,M., Muth, 2 ). K., Fox, M., & Muth, M. (2 , Autumn).International corporate governance reform. if standards of financial reporting and of businessconduct more generally are not seen to be raised, a greater reliance onregulation may be inevitable" (Committee on the Financial Aspects ofCorporate Governance, 1992, p. Cambridge:Blackwell Publishers. The principal objective of corporate disclosure of any type ofinformation is to enable the users of such information to have theopportunity and the capability of making better investment decisions. Theassumption behind such a rationale is that, if investors are provided withsufficient quantities of reliable information, they will be able to protectthemselves. Weisenborn and Norris (1997) noted that: "Over the last four decadesthere has been a marked increase in the number of frauds and their costs"(p. Meek, G. K., Roberts, C. Monks, R. Weisenborn, D., & Norris, D. These motives include: a desire tomaintain the market price of a company's stock; the creation of an image ofprofitability, as a means of favorably influencing current, and/orpotential lenders; and to satisfy management greed and ego. Management Accounting (British), 77(4), 43-45. Journal of InternationalBusiness Studies, 26(3), 555-572. Annual reporting: Room forimprovement? (1992,December 1). Nevertheless, a valid issueconcerns the degree of disclosure regulation would require in financialstatements. The auditors, their client, fraud anderror. London: Committee on the Financial Aspects of CorporateGovernance. Disclosure requirements related to therelationship between the management of a publicly traded company and itsauditors are designed to insure the independence of auditors, in order tofurther insure adherence to strict accounting standards, precludefalsification of financial records, and insure the disclosure of allpertinent financial and operational information. The increasing frequency of fraud cases "has been attributed toan increase in the advantages received from committing fraudulent acts anda decrease in the risk of being caught and punished. Shareholder rights and proxy disclosure requirements resulted from thebelief that the management of a publicly traded company can effectivelyfrustrate shareholders' efforts to participate in the management ofpublicly traded companies. (1993, December). (1999, April). The issue involved is whether mandating by law (regulation) the degreeand quality of corporate disclosure is appropriate and necessary, orwhether voluntary disclosure or adherence to accepted accounting standardsis sufficient. Regulation, thus, must serve as a useful tool, as opposed to beingan end in itself. In 1992, the CadburyReport stated that "... (1995). The benefits ofmanagement fraud are escalating. Factorsinfluencing voluntary annual report disclosures by U.S., U.K. Report of the Committee on the Financial Aspects of CorporateGovernance. Red flags ofmanagement fraud. M.
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