Financial Reporting and the Financial Markets

Thèmes abordés

Financial reporting, financial markets, capital markets, IFRS, accounting strandards, accounting norms, corporate governance

Résumé du document

Currently one of the most discussed economic phenomena of all times, globalisation has had a major impact on the world economy. Traditionally driven by trade, this globalisation is now taking a new form through a growing internationalisation of the world's financial markets. The value of global financial assets has been multiplied more than fifteen fold during the last 30 years (Farrell, Fölster and Lund, 2008); while global market capitalisation more than doubled over the last decade (Choi and Meek, 2008). More especially, capital markets (markets for long-term funds where securities such as stock and bonds are traded (Morgenson and Harvey, 2002)) also benefited from this increase, with the value of international securities offerings now exceeding US$ 1.5 trillion, 4 times more than 30 years ago (Choi and Meek, 2008).

For companies, this growing integration of capital markets offers the possibility to seek capital outside of their home country, while investors are given the possibility to exploit investment opportunities wherever they are located, both resulting more interesting opportunities. However, the effective functioning of those markets is made contingent to a good financial reporting. Indeed, to satisfy their decision needs, external investors are in need of financial information that is both comparable and reliable. They are thus facing difficulties due to the diversity in national reporting requirements and practices; which has resulted, for the last 50 years, in global efforts attempting to harmonize financial reporting standards around the world.

That is why "policy-makers are confronted with the question of how to develop a sound financial reporting infrastructure", an issue that is notably function of the quality of the standards and the corporate governance under which they are applied (e.g. Kothari, 2000; Tweedie, 2005). That is why this paper intends to answer this question by exploring the relation and the current impact of those two pillars on financial reporting.

Extraits

[...] Besides, convergence would also increase some countries' competitiveness and attractiveness towards foreign investors, the extent of which depends on the current quality and comparability of their accounting practices (Kothari, 2000). Globally, this would all result in enhanced economic performance and higher economic growth (e.g. International Chamber of Commerce, 2005; Tweedie, 2005). Such convergence towards international accounting standards would also cut the time and costs incurred to organizations when complying with various national regimes and consolidating under their home countries' requirements. [...]

[...] That is why this paper intends to answer this question by exploring the relation and the current impact of those two pillars on financial reporting. The link between financial reporting and capital markets Financial reporting can generally be considered as the financial information prepared and provided by companies about their activities and transactions (Morgenson and Harvey, 2002), in order to facilitate resource allocation decisions by people using that information, such as lenders, investors and regulators (Choi and Meek, 2008). The increased globalization and volatility of capital markets has resulted in a growing interest from both market participants and regulators in international accounting and in the quality of financial reporting worldwide. [...]

[...] (2008) Corporate governance and disclosures on the transition to International financial reporting standards. Accounting and Finance [Online] 48 pp. 649-671. Available through: Sciverse Scopus database [Accessed 06 December 2010]. Kothari, S. P. (2000) The role of Financial Reporting in reducing financial risks in the market. Federal Reserve Bank of Boston Journal [Online] Available at: http://www.bos.frb.org/economic/conf/conf44/cf44_6.pdf [Accessed 08 December 2010]. Morgenson, G. and Harvey, C. R. (2002) The New York Times Dictionary of Money and Investing: The Essential A-to-Z Guide to the Language of the New Market. New York: Times Books. [...]

[...] The link between financial reporting and capital markets 2 II. The logic behind international accounting standards 3 III. The issues and limitations of such convergence 4 IV. The current stage of the process 5 V. The impact of corporate governance on financial reporting 7 VI. The effect of an effective corporate governance 8 Conclusion 10 Bibliography 12 Introduction Currently one of the most discussed economic phenomena of all times, globalisation has had a major impact on the world economy. Traditionally driven by trade, this globalisation is now taking a new form through a growing internationalisation of the world's financial markets. [...]

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