AKUNTANSI INTERNASIONAL

CHAPTER IV: REPORTING AND DISCLOSURE

ASEP SURYADI

20208200

4EB11

1. Accounting disclosure practices are influenced by differences in corporate financial governance in a country

Development of the disclosure system is closely associated with the development of accounting systems. Disclosure standards and practices are influenced by financial resources, legal systems, political and economic ties, the level of economic development, education, culture, and other influences.

National differences in disclosure is driven largely by differences in corporate governance and finance. In the United States, Britain and other Anglo-American countries, equity markets provided most of the funding that the company needs to be very advanced. In these markets, ownership tends to spread widely among many shareholders and investor protection is emphasized. Institutional investors play an increasingly important role in these countries, demanding financial returns and increasing shareholder value.

In most other countries (like France, Japan and some emerging market countries), share ownership is still highly concentrated and the bank (or the owner and family) has traditionally been a major source of corporate financing. These banks, and the other in obtaining more information about the company's financial position and activities.

VOLUNTARY DISCLOSURE

Some studies show that managers have incentives to reveal information about the company's current performance and future time voluntarily. In a recent report, the Financial Accounting Standards Board (FASB) describes a FASB project on business reporting which supports the view that the company will benefit from the capital market by increasing voluntary disclosure. The report outlines how companies can describe and explain its investment potential to investors.

A number of rules, such as accounting and disclosure rules, and approval by a third party (such as auditing) can improve the functioning of the market. Accounting rules to try to reduce the ability of manjer in record economic transactions in ways that do not represent the best interests of shareholders. Disclosure rules establish provisions to ensure that shareholders receive timely, complete and accurate.

MANDATORY DISCLOSURE PROVISIONS

Stock exchanges and government regulatory agencies generally require that listed companies to foreign companies to share financial information and nonfinancial information similar to that required for domestic firms. Any information that was announced, which was distributed to shareholders or reported to regulatory agencies in the domestic market. However, most states do not monitor or enforce the implementation of the provisions of "suitability disclosure between the (jurisdiction)."

Protection of shareholders differ from country to country. Anglo-American countries such as Canada, Britain and the United States to provide protection to shareholders who are widely and strictly enforced. In contrast, the protection to the shareholders received less attention in some other countries like China for example, prohibiting insider trading (trading that involves the inner circle), while weak law enforcement make the enforcement of these rules are almost non-existent.

REPORTING AND DISCLOSURE PRACTICES

Disclosure rules are very different around the world in some ways like the statement of cash flows and changes in equity, related party transactions, segment reporting, the fair value of financial assets and liabilities and earnings per share. In this section attention is focused on:

1. Disclosure of information to see the future "information look to the future" that includes:

A. the forecast revenue, profit and loss, profit and loss per share (EPS), capital expenditures, and other financial post

B. information regarding the performance or prospective future economic position that is not too sure when compared with the projected post, fiscal period, and the projected number of

C. statements of management plans and objectives of future operations.

Most companies in each country presents a disclosure of information about plans and goals management. Conversely fewer companies that disclose prophecy, from the lowest two companies in Japan and the highest 31 companies in the United States. Most forecasts in the U.S. and Germany regarding capital expenditure, not profits and sales.

2. Disclosure of segment

Investors and analysts will request information regarding operating results and financial industry segments classified as significant and increasing. Example, financial analysts in the United States has consistently been asked disagregat report data in the form of a much more detailed than they are now. International Financial Reporting Standards (IFRS) also discussed the highly detailed segment reporting. This report helps the users of financial statements to better understand how the parts of a company affects the whole enterprise.

3. Cash flow statement and fund flow

IFRS and accounting standards in the United States, Britain, and a large number of other countries require the presentation of cash flows.

4. Disclosure of social responsibility

Today the company is required to demonstrate a sense of responsibility to a bunch of so-called interested parties (stakeholders) - employees, customers, suppliers, governments, activist groups, and the general public.

Information regarding the welfare of employees has long been a concern for labor organizations. The problem areas of concern related to working conditions, job security, equality of opportunity, workforce diversity and child labor. Employee disclosure also preferred by investors because it provides valuable input regarding labor relations, cost, and productivity.

5. Specific disclosures for non-domestic users of financial statements and the accounting principles used

Financial statements may contain specific disclosures to accommodate the users of financial statements non-domestication. Such disclosure is:

1. "Re representation for comfort" to the financial information in currencies non-domestic.

2. Repeated presentation of the results and financial position is limited by the two accounting standards group.

3. A complete set of financial statements prepared in accordance with accounting standards kesua groups, and some discussion about the differences between the accounting principles that are widely used in the primary financial statements and a few other sets of accounting principles.

Many companies in countries that do not use English as primary language translation also perform throughout the annual report of the home country language into English. Also, some companies prepare financial statements in accordance with accounting standards more widely accepted than domestic standards (particularly IFRS or U.S. GAAP) or in accordance with both domestic and a second group of standard accounting principles.

CORPORATE GOVERNANCE DISCLOSURES

Corporate governance related to the internal tools used for running and controlling a firm - responsibility, accountability and the relationship between the shareholders, board members and managers are designed to achieve corporate objectives. The problems of corporate governance include the rights and treatment to the shareholders, the board's responsibilities, disclosure and transparency and the role of the parties concerned. Corporate governance practices has gained the attention of regulators, investors and analysts.

DISCLOSURE AND REPORTING ON INTERNAL BUSINESS

World Wide Web is increasingly being used as channels of information dissemination, where the print media now plays a secondary role. Business Reporting Language (Extensible Business Reporting Language - XBRL) is an early stage of financial reporting revolution. This computer language is built into almost all software for accounting and financial reporting to be issued in the future, and most users do not need to learn how to cultivate it so that it can directly enjoy the benefits.

DISCLOSURE REPORTS ANNUAL MARKET IN DEVELOPING COUNTRIES

Disclosure of the company's annual report on emerging market countries are generally less extensive and less credible than the reporting companies in developed countries. For example, the disclosure of which is insufficient and misleading and neglected consumer protection cited as the cause of the East Asian financial crisis in 1997.

Low level of disclosure in emerging market countries is consistent with the system of corporate governance and finance in these countries. Less developed equity markets, banks and internal parties such as family groups distribute most pendanaa needs and generally not too much of a need for public disclosure of credible and timely manner, when compared with the more advanced economies.

However, investor demand for information about the company in a timely and credible in emerging market countries more and more regulators to respond to this demand by creating more stringent disclosure provisions and increase surveillance efforts and enforcement.

IMPLICATIONS FOR USERS AND FINANCIAL MANAGERS

The managers of many companies are constantly heavily influenced by the cost of mandatory disclosure, the level of mandatory and voluntary disclosure is increasing worldwide. Managers in countries that traditionally have low disclosure should consider whether it operates a policy of disclosure may provide significant benefits in the amount of their company. Moreover, the managers who decided to provide more disclosure in areas considered important by investors and financial analysts, such as disclosure of segment and reconciliation, can gain competitive advantage from another company that has a strict disclosure policy.

2. Important issues that affect management's decision to make the disclosure decision

Decision Making in Management

A. Problem Definition and Decision Making

Problem (problem) is a deviation between the should (should) happen in a real (actual) occurs, so that the cause should be found and verified.

Decision-making (desicion making) is to assess and impose pilihan.Keputusan was taken after some calculations and considerations alternatif.Sebelum option was dropped, there are several steps that may be traversed by the decision maker. These stages may include identification of major problems, menyusn alternative will be selected and arrive at the best decision. In general, the notion of decision making has been suggested by many experts, such as:

B. Steps in Problem Analysis

1. Determining the purpose of determining the first target without confusing what is to be achieved and what you want done

2. Gather facts by studying the records are relevant, applicable rules and customs, talk to the person concerned to know the opinion

3. Consider the facts and determine the follow-up to be taken by connecting facts with one another

4. Take action with respect to:

* Determine who should take action.

* Consider who should be informed of the decision to be taken

* Determine the appropriate time to carry out actions that have been decided.

5. Check the results of its implementation to determine whether the objectives achieved and learned changes in attitudes and relationships between one party to another party.

C. Experts said the decision

1. G. R. Terry:

Suggested that the selection decision is based on certain criteria of two or more alternatives are possible.

2. Claude S. George, Jr.:

Said that the decision-making process undertaken by most managers in the form of an awareness, which includes consideration of the activities of thinking, assessment and selection among alternatives.

3. Horold and Cyril O'Donnell:

They say that decision making is the selection of one among alternative courses of action that is the core of the plan, a plan can not say no if there is no decision, a reliable source, leads or reputation that has been made.

4. P. Siagian:

Decision making is a systematic approach to a problem, gathering facts and data, ripe for research and action alternatives.

D. Phase Decision Making

1. Intelligence activities

Creative process to find a condition that requires a decision is selected or not.

2. Design activities

Activities that put forward the concept of intelligence-based activities to achieve goals.

Design activities include:

- Find methode

- Develop methods

- Analyze the actions taken

3. Election activities

Choose one of the many alternatives in the existing decision-making. The selection is based on established criteria.

activity of the three mentioned above, we can conclude the decision-making stages are:

* Identify the main problem

* Develop alternative

* Analyze the alternatives

* Taking the best decision

E. Decision Making Techniques

1. Operational Research / Operations Research

The use of scientific methods in analyzing and solving problems.

2. Linear Programming

Research with mathematical formulas.

3. Gaming War Game

The theory of the determination of strategy.

4. Probability

Probability theory is applied to the rational calculation of matters is not normal.

F. Decision Making Process

Decision-making processes nearly equal to the formal strategic planning process that is several stages:

1. Stage 1: Understanding and formulation of the problem

2. Phase 2: Collection and analysis of relevant data.

3. Phase 3: Development alternatives

4. Phase 4: Evaluation of alternatives

5. Stage 5: Selection of best alternative

6. Stage 6: Implementation of decision

Decision Making by the Experts:

According to G. R. Terry:

1. Formulate the problems facing

2. Analyzing the problem

3. Set a number of alternatives

4. Evaluate the alternatives

5. Choose the alternative that the decision will be implemented

According to Peter Drucher:

1. Setting the problem

2. Analyzing the problem

3. Develop alternative

4. Make informed decisions

5. Effective decisions into action

According to Stonner:

Determine the cause of the problem

• Define the problem

• Diagnosis of the cause

• Examine the causes

Develop Alternative

• Looking for a creative alternative and not to rush to evaluate

Alternative Evaluation and Selection of a good alternative

• Evaluation of alternative

• Choose the best alternative

Implement the hold decisions and follow-up.

• Anticipate potential problems

• Use of preventive measures

• "Set up" contingency measures.

G. Strategic management

In effective decision-making required strategic management such as: do rational selection of an action.

Rational decision-making process is described as follows:

1. Investigate the situation:

• Identification problem

• Identify the purpose

• Diagnose the cause of

2. Develop Alternative

• Looking for a creative alternative

3. Assessing and Selecting the Best Alternative

4. Develop and follow up

• Plan implementation

• Implementation plan

• Monitor implementation and make necessary adjustment

3. Purpose of accounting disclosure in the equity market

In a competitive economy, the disclosure is a means to channel corporation accountability to capital providers (investors) and to mepermudah allocation of resources to their most productive use.

Corporation a need to attract capital in a very large amount to finance the production and distribution activities are extensive. Therefore internal pembiyaan is highly dependent on external capital invested by the investor on a koorperasi, In return, an investor requires disclosure (corporate transparency) in which investors can assess the quality of their stock to cultivate.

Conceptual link between disclosure and cost of capital increase of the theory of investment behavior under conditions of uncertainty, namely:

1. In a world of uncertainty, investors look at returns on investment securities as money received as a consequence of ownership.

2. Because of the uncertainty of return is viewed in a probabilistic sense.

3. Investors use a number of different measures to quantify the expected results of a security.

4. Investors prefer a high return rate for a certain risk level or vice versa.

5. The value of a security is positively related to the flow of expected results and inversely related to the risks associated with the refund.

6. Thus, disclosure of the company will increase the probability distribution of outcomes expected by investors by reducing the uncertainty associated with the refund. So will improve performance (performance of the company) in the eyes of investors that lure investors to invest on a larger similar securities so as to reduce the cost of capital.

4. Fundamental differences in corporate financial disclosure practices in various aspects

Notes to the financial statements intended to amplify or clarify items presented in the main part of the financial statements (income statement, changes in capital, balance sheet and cash flow). In most cases, all the necessary data reader, can not be presented in the financial statements themselves, therefore the report must include the essential information presented in the notes to financial statements. Notes to the financial statements may take the form of narrative, in part or in full. Notes to the financial statements are not only helpful for users who do not report such a quantitative understanding of accounting information but is also important to understand the performance and financial position.

Level of disclosure in the financial statements are the things that need to be considered by the assessment (judgment) managers. Level of disclosure that is moving towards full disclosure (full disclosure) will reduce the information asymmetry is a necessary condition (Necessary condition) to do earnings management (Trueman and Titman, 1998). Therefore the level of disclosure is negatively related to earnings management. Companies with a minimum level of disclosure likely to do earnings management and vice versa (Lobo and Zhou, 2001) in Yanivi (2003).

In the statement of financial accounting standards (SFAS) No. 1 on presentation of financial statements, paragraph 70 says:

Notes to the financial statements include narrative explanations or details of the amount shown in the balance sheet, income statement, cash flow statement and statement of changes in equity as well as additional information such as contingency obligations and commitments. Notes to the financial statements also include the information required and encouraged to be disclosed in the Statement of Financial Accounting Standards and other disclosures necessary to produce a fair presentation of financial statements.

Notes to the financial statements disclose:

1. Information on the basic financial statements and accounting policies are selected and assigned to important events and transactions.

2. The information presented in GAAP but not presented in the balance sheet, income statement, cash flow statement and statement of changes in equity.

3. Additional information is not presented in the financial statements but is required in order to be fair representation.

The more complete information disclosed in the notes to the financial statements (full disclosure) the financial statements, the reader will further understand the company's financial performance.

Rate Disclosure

In deciding what information will be reported, the usual practice is to provide sufficient information for judgments and decisions affecting the users. This principle is often referred to as full disclosure (full disclosure), recognizes that the nature and amount of information included in financial statements reflect a series of trade off assessments. This trade off between (1) the need to disclose in sufficient detail the things that will affect the decisions of users, with (2) the need to condense the presentation of information in order to be understood. In addition, preparation of financial statements must also take into account the cost of manufacture and use of financial statements (Kieso and Weygandt, 2002).

In case of information asymmetry is high, then the users of financial statements do not have enough information to know whether the financial statements, in particular earnings have been manipulated. Microstructure market theory says that one of the adverse selection problem faced by decision makers is the possibility of firm-specific information that the material not disclosed to the public (Yanivi, 2003). Capital market regulators to reduce this information asymmetry by making the minimum requirement for disclosure needs to be done by the companies listed on stock exchanges. One such regulation is the decision of the Capital Market Supervisory Board chairman KEP-06/PM/2000 number of guidelines for financial statement presentation. Greenstein and Sami (1994) in Yanivi (2003) examined and found that the obligation of the Securities Exchange Committee (SEC) regarding the disclosure of public enterprise segment in the U.S. stock market has reduced the information asymmetry is indicated by a decrease in bid-ask spread of the company.

Level of disclosure in the financial statements will help users of financial statements to understand the content and the numbers reported in financial statements. There are three levels of disclosure that is full disclosure, disclosure is reasonable, and adequate disclosure. Refers to the full disclosure of all information provided by the company, well-informed financial and nonfinancial information. Full disclosure not only include the financial statements but also includes information provided in the management letter, company prospect, and so on. Adequate disclosure is the disclosure required by applicable accounting standards. While the disclosure is reasonably adequate disclosure coupled with other information that could affect the fairness of financial statements such as contingencies, commitments and so forth.

Imhoff and Thomas (1994) in Yanivi (2003) proved that the quality rating of the analysis was positively related to conservatism in the estimation and selection of accounting methods, and a number of detailed disclosures on the reported figures. The implications of this discovery is a company that is more conservative in making estimates and choose the method of accounting (or management company with a level of income / low income smoothing) will reveal more information. If companies choose to report conservative earnings management / low earnings smoothing. Then it shows a negative relationship between income smoothing the level of disclosure.

Quality of Disclosure

Disclosure quality in corporate annual reports known by a variety of concepts. Among others, the sufficiency (adequacy) (Buzby, 1975), completeness (comprehensiveness) (Barrett, 1976), Informative (informativeness) (Alford et al., 1993), and on time (time lines) (Courtis, 1976; Whittred, 1980 ). Imhoff (1992) refers to the level of completeness as a characteristic quality of disclosure, while Singhvi and Desai (1971) refers to the completeness (completeness), accuracy (Accuracy), and reliability (reliability) as the characteristic quality of disclosure. Empirical indicators of the quality of expression in the form of disclosure index (disclosure index) which is the ratio (ratio) between the number of elements (items) information that is filled with a number of elements that might be met. The higher the number the disclosure index, the higher the quality of disclosure.