SUPPLY
DEMAND
Informational objective
To provide information about the financial position, performance, and
changes in financial position of an enterprise that is useful to users in
making economic decisions.
Information asymmetry problem
Example: lemons problem by Akerlof (1970)
Managers have information about the company that investors dont have
but want to have Information Asymmetry.
Problem is how to get managers to truthfully reveal (signal) the
information that investors want:
Mandatory disclosure force managers to reveal.
Voluntary disclosure incentivize managers to reveal.
Stewardship objective
To show the results of the stewardship of management, or the
accountability of management for the resources entrusted to it.
Moral hazard problem or Agency problem
Shareholders (principal) demand financial/accounting information about
company in order to evaluate managers (agent) performance.
But information is supplied/produced by manager himself and he has
incentive to reveal information that maximizes his own interest.
Problem is how to get managers to truthfully reveal the information that
can accurately reflect his efforts:
Mandatory disclosure force managers to reveal.
Voluntary disclosure incentivize managers to reveal.
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8
Generally Accepted Accounting
Principles (GAAP)
Financial statements are prepared under a set of Generally Accepted
Accounting Principles (GAAP).
GAAP is reflected in a set of Accounting Standards promulgated by the
standards setting body in the country.
International Accounting Standards Board (IASB) based in London sets
International Financial Reporting Standards (IFRS) which are adopted by many
countries including Singapore, Hong Kong, China, Korea, etc.
In the U.S., the Financial Accounting Standards Board (FASB) sets Statements
of Financial Accounting Standards (US GAAP)
In Singapore, the Accounting Standards Council (http://www.asc.gov.sg) sets
Financial Reporting Standards (FRS) which follow closely IASB
pronouncements.
Proposed new standards or changes in standards are first circulated publicly as
exposure drafts (ED) for comments/feedback, before revision and adoption (see
next slide).
TPS: Think of answers. Pair up with another student and jot down brief
answers on a piece of paper. Then the pair share the answers with the
class.
The ASC prescribes accounting standards for both companies and non-corporate
entities (e.g., charities, societies).
The ASC is responsible only for the formulation and promulgation of accounting
standards (FRS).
The monitoring and enforcement of compliance with accounting standards will
remain the prerogative of the respective regulators, viz. ACRA for companies
(http://www.acra.gov.sg), Commissioner of Charities for charities, Registrar of
Co-operative societies for co-operative societies and Registrar of Societies for
societies.
ACRA stands for Accounting and Corporate Regulatory Authority.
Non-compliance exceptions:
May be allowed if companies apply standards other than FRS
(e.g., US GAAP) in exceptional cases.
May be approved if noncompliance is necessary for the
accounts to present a true and fair view of the company (see
the next slide).
Cost of compliance on its own is insufficient to justify an
exemption.
Particulars of the non-compliance, the reasons, and its effect
should be disclosed with a statement by the auditor.
FRS 1 para. 10
A complete set of financial statements comprises:
(a) a statement of financial position as at the end of the period;
(b) a statement of comprehensive income for the period;
(c) a statement of changes in equity for the period;
(d) a statement of cash flows for the period;
(e) notes, comprising a summary of significant accounting policies and
other explanatory information; and
(f) comparative financial statements of the prior periods.
An entity may use titles for the statements other than those used in this
Standard.
Balance Sheet, Profit or Loss Account, Statement of Earnings, etc
4 months
60 days 14 days
For interim reports, a company may produce a complete set of financial statements
(as in annual reporting) or a condensed set of financial statements.
In Singapore, quarterly financial reporting is now mandatory for all listed companies
whose market capitalization on Mar 31, 2003 exceeded S$75 million.
The market capitalisation of companies exempted from quarterly reporting will be
reviewed at the end of each calendar year, starting Dec 31, 2006.
A company will not be exempted from quarterly reporting should its market capitalisation
fall below $75 million subsequently.
Exempted companies should report semi-annual reports within 45 days after the relevant
financial period.
Quarterly financial report must be released within 45 days of quarter-end.
Financial report for the final interim period (i.e. 4th quarter) is not necessary, but .
if an estimate is changed significantly during the final interim period, the nature and
amount of the change should be disclosed in the annual statements.
NOL did not respond to emails asking for a comment or answer telephone calls.
Banking sources told Reuters that NOL, like other companies in which
Singapore state investor Temasek Holdings (TEM.UL) has a stake, is
considering ways to bolster its capital, but no mandates have been given out.
Neptune Orient Lines Limited (the "Company") wishes to announce that in the
course of its business, the Company continually evaluates all available options
to improve its performance and strategic position. It is the Companys policy not
to comment on market rumour or speculation. We confirm that the Company has
not entered into any agreements that would require disclosure in accordance
with the SGX-ST Listing Rules.
10 March 2009
Business Times 25 June 2007, Corporate disclosure: SGX must be the standard bearer
On June 11, in response to queries from the Monetary Authority of Singapore (MAS)
over a sudden surge in its share price the SGX said that it 'is not aware of any
information not previously announced concerning the business of SGX and its
subsidiaries, which, if known, might explain the price increase'. It also said that it 'has
not entered into negotiations or agreements which are discloseable under the Listing
Rules'
A few days after the June 11 query and response, the Tokyo Stock Exchange (TSE)
announced that it had taken a 4.99 per cent stake in the SGX in an attempt to deepen
ties already established with the local bourse. But doesn't the Listing Manual say that a
company must, at any time, disclose any information that would likely 'materially
affect the price or value of its securities'?
Surely the exchange must have known after the price of its stock had shot up more than
25 per cent that something must have been afoot.
The exchange has been collaborating with the TSE since at least December last year
and in mid-December,
Prof. ZANG Yoonseok 46
MCQ for Review
When is the deadline for release of preliminary annual financial
statements per SGX Listing Manual Rule 705?
A. Within 30 days after financial year-end.
B. Within 45 days after financial year-end.
C. Within 60 days after financial year-end.
D. Within 75 days after financial year-end.
E. Within 90 days after financial year-end.
Which of the following is not required additional disclosure in annual
reports under SGX listing manual?
A. Fees paid to auditors for non-audit work.
B. Employee share option scheme.
C. Shareholding structure.
D. Information on customers that contribute more than five percent of total
revenues.
E. Listing of real estate properties.
-- END OF TOPIC --
Prof. ZANG Yoonseok 47