ChoiSM_ch05 - Chapter 5 Reporting and Disclosure Discussion...

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Chapter 5 Reporting and Disclosure Discussion Questions 1. Accounting measurement is the process of assigning numerical symbols to events or objects. Disclosure, on the other hand, is the communication of accounting measurements to intended users. Advances in financial disclosure are likely to outpace those related to accounting measurement for a number of reasons. First, many would argue that financial disclosure is a less controversial area than accounting measurement. Second, changes in disclosure requirements are more rapidly implemented than changes in accounting measurement rules. Finally, whereas a single set of accounting measurement rules may not serve users equally well under different social, economic and legal systems, a company can disclose without necessarily sacrificing its accounting measurement system. 2. Four reasons why multinational corporations are increasingly being held accountable to constituencies other than traditional investor groups: a. The development and growth of the influence of trade unions. b. The growing recognition of the view that those who are significantly affected by decisions made by institutions in general must be given the opportunity to influence those decisions. c. The rejection by many governments of classical economic premises such as the belief that the regulated pursuit of private gain maximizes society’s welfare. d. The increasing concern over the social and economic impact of multinational corporations in host countries. 3. Arguments in favor of equal disclosure include: a. The absence of equal disclosure would create an unfair playing field for U.S. companies. Non-U.S. companies would have a competitive advantage in that they would not have to disclose the same information and so would not incur the costs involved in generating and publishing it. b. Investors in non-U.S. companies have the same information needs as those who invest in U.S. companies. A market concerned with investor protection would make sure that investors have timely and material information on all listed companies, not just those domiciled in the United States. c. Unequal disclosure might impede cross-company comparisons involving U.S. and non- U.S. companies. Possible reasons against equal disclosure include: a. The high cost of meeting equal disclosure requirements may deter foreign issuers from listing in the United States. 1
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b. The extra costs involved work against the benefits of listing to the foreign companies. Evaluation of arguments: All of these arguments have merit. There is no unambiguously correct answer as to what disclosure requirements should be imposed on foreign issuers, and there has been a contentious debate on this subject in the U.S. in recent years. In practice, fairness arguments often carry great weight in public debate, even when objective economic analysis does not support them. 4.
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ChoiSM_ch05 - Chapter 5 Reporting and Disclosure Discussion...

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