Week 1
Understanding sources of financial and business-related information is crucial for decision-
making in accounting. The slide categorizes sources into four main types:
Self-Disclosing Information: Companies provide their own data through:
o Legal reporting (mandatory financial statements, SEC filings, regulatory
disclosures).
o Voluntary disclosures (press releases, sustainability reports, investor relations
pages).
Market and Competitor Information: External data helps firms understand their
industry landscape through:
o Industry insights (trends, benchmarks, regulatory changes).
o Competitor performance (annual reports, earnings calls, strategic moves).
Media/Public Coverage: Public perception and reputation are influenced by:
o Traditional media (newspapers, business journals).
o Social media (real-time reactions from stakeholders).
Database & Technology: Advanced analytics provide deeper insights:
o Big data (predictive analytics, AI-driven financial modeling).
o Digital platforms (Google Analytics for customer trends, data-driven decision-
making).
Corporate reporting in the EU involves both financial and non-financial disclosures under
specific regulatory frameworks:
Financial Disclosure:
o IFRS (International Financial Reporting Standards) – Used globally, ensures
comparability.
o GAAP (Generally Accepted Accounting Principles) – U.S.-based standard.
Non-Financial Disclosure:
o ESRS (European Sustainability Reporting Standards) – Focuses on
sustainability, ESG factors.
Regulatory Frameworks:
o Transparency Directive (2004/109/EC) – Ensures investors have access to
reliable financial information.
o Capital Requirements Directive (CRD) – Regulates capital structures of
financial institutions.
o Statutory Audit Directive (2014/56/EU) – Enhances audit quality and
transparency.
o Corporate Sustainability Reporting Directive (CSRD) – Mandates
sustainability disclosures.
,These frameworks ensure transparency, investor protection, and accountability within the EU.
Financial statements serve a broad range of stakeholders who rely on accurate reporting:
Management – Uses reports for internal decision-making.
Shareholders – Evaluate financial performance and dividend potential.
Lenders – Assess creditworthiness and loan risks.
Potential Investors – Determine investment opportunities.
Government/Regulators – Ensure compliance with legal requirements.
Employees – Concerned about job security, wages, and company performance.
Suppliers – Assess the financial health of their business partners.
Customers – Gauge long-term reliability and sustainability.
Public – General economic and corporate social responsibility considerations.
A comparative analysis of two companies highlights key financial indicators:
Company Red Green
Net Income €200 mln $180 mln
Gross Margin 70% 60%
Total Assets €2,000 mln $1,000 mln
Employees n.a. 100
The decision-making process involves:
Comparing financial performance (profitability, efficiency).
Considering missing information (Red lacks employee data).
Assessing external factors (currency differences, market positioning).
Before making a final decision, additional factors like liabilities, growth potential, and
industry risks should be examined.
Key questions regarding international accounting regulations:
Should all countries follow the same accounting standards?
The basis of traditional financial statement analysis is comparison. Comparing
company performance with similar companies in the same industry (or with the
industry average) is easier if the company’s uses the same accounting rules for
measuring the financial position at a specific date and the performance of the
company over a period.
, Is flexibility beneficial, or does it hinder comparability?
While core principles of financial reporting should ideally remain consistent, allowing
some diversity can accommodate specific national business environments and
regulatory requirements. This flexibility can lead to more relevant disclosures and
financial representations that accurately reflect local conditions.
The key lies in balancing global consistency with local relevance, ensuring
fundamental principles are consistently applied while adapting specifics to reflect
diverse economic landscapes.
Who should set these standards, and what criteria should be used?
Ideally, an independent, transparent organization with expertise in international
finance and accounting should set global standards—avoiding biases or undue
influence from individual nations or commercial entities. An authoritative body like
the International Accounting Standards Board (IASB) strives to balance interests from
various stakeholders, creating credible standards accepted widely across
international borders.
How Should the Standard Setter Determine What the ‘Right’ Standards Are?
Determining the 'right' standards involves extensive consultation and dialogue with a
broad spectrum of stakeholders, including financial professionals, regulators,
businesses, and investors from around the world.
Standards should be dynamic, evolving through research, technological advancement,
and feedback, ensuring they remain relevant and capable of addressing emerging
global financial issues.
While IASB (International Accounting Standards Board) and IFRS address these concerns,
ongoing debates continue about standardization vs. country-specific needs.
The International Accounting
Standards Board (IASB) operates
under a structured hierarchy:
This structure ensures transparency,
consistency, and credibility in
financial reporting worldwide.
, The IASB is the primary body responsible for developing international financial reporting
standards (IFRS).
Key characteristics:
Private sector entity: Unlike government agencies, the IASB operates independently,
which helps it remain neutral and globally applicable.
Under the IFRS Foundation: The IFRS Foundation oversees IASB’s work and ensures
its legitimacy.
No direct governmental responsibility: The IASB sets standards, but governments and
regulatory bodies decide whether to adopt and enforce them.
No enforcement power: Unlike financial regulators (e.g., the SEC in the U.S.), the
IASB cannot impose penalties for non-compliance.
Develops key accounting standards:
o IAS (International Accounting Standards): Older standards before IFRS.
o IFRS (International Financial Reporting Standards): Modern principles-based
framework.
o SIC (Standing Interpretations Committee) & IFRIC (IFRS Interpretations
Committee): Provide guidance on how to interpret and apply IFRS standards.
These aspects emphasize the IASB’s role as a standard-setter rather than an enforcer.
The IASB follows a structured due process to ensure transparency, stakeholder involvement,
and credibility in setting international standards.
Stages of the Due Process:
1. Research Phase – Collecting input from stakeholders:
o Standards Advisory Council & Working Groups – Experts provide technical
insights.
o International groups – Includes analysts, auditors, preparers, and regulators.
o Local standard-setters & political groups – Address region-specific concerns.
2. Agenda Decision – The IASB decides whether a new standard or amendment is
necessary.
3. Proposal Stage:
o Discussion Paper (DP, Optional) – A preliminary document seeking feedback.
o Exposure Draft (ED) – The first formal draft of a new standard, open for public
consultation.
4. Public Consultation – Stakeholders provide input, which helps refine the standard.
5. Finalization:
o IFRS Standard is published – Once finalized, the new or amended standard
becomes official.
Understanding sources of financial and business-related information is crucial for decision-
making in accounting. The slide categorizes sources into four main types:
Self-Disclosing Information: Companies provide their own data through:
o Legal reporting (mandatory financial statements, SEC filings, regulatory
disclosures).
o Voluntary disclosures (press releases, sustainability reports, investor relations
pages).
Market and Competitor Information: External data helps firms understand their
industry landscape through:
o Industry insights (trends, benchmarks, regulatory changes).
o Competitor performance (annual reports, earnings calls, strategic moves).
Media/Public Coverage: Public perception and reputation are influenced by:
o Traditional media (newspapers, business journals).
o Social media (real-time reactions from stakeholders).
Database & Technology: Advanced analytics provide deeper insights:
o Big data (predictive analytics, AI-driven financial modeling).
o Digital platforms (Google Analytics for customer trends, data-driven decision-
making).
Corporate reporting in the EU involves both financial and non-financial disclosures under
specific regulatory frameworks:
Financial Disclosure:
o IFRS (International Financial Reporting Standards) – Used globally, ensures
comparability.
o GAAP (Generally Accepted Accounting Principles) – U.S.-based standard.
Non-Financial Disclosure:
o ESRS (European Sustainability Reporting Standards) – Focuses on
sustainability, ESG factors.
Regulatory Frameworks:
o Transparency Directive (2004/109/EC) – Ensures investors have access to
reliable financial information.
o Capital Requirements Directive (CRD) – Regulates capital structures of
financial institutions.
o Statutory Audit Directive (2014/56/EU) – Enhances audit quality and
transparency.
o Corporate Sustainability Reporting Directive (CSRD) – Mandates
sustainability disclosures.
,These frameworks ensure transparency, investor protection, and accountability within the EU.
Financial statements serve a broad range of stakeholders who rely on accurate reporting:
Management – Uses reports for internal decision-making.
Shareholders – Evaluate financial performance and dividend potential.
Lenders – Assess creditworthiness and loan risks.
Potential Investors – Determine investment opportunities.
Government/Regulators – Ensure compliance with legal requirements.
Employees – Concerned about job security, wages, and company performance.
Suppliers – Assess the financial health of their business partners.
Customers – Gauge long-term reliability and sustainability.
Public – General economic and corporate social responsibility considerations.
A comparative analysis of two companies highlights key financial indicators:
Company Red Green
Net Income €200 mln $180 mln
Gross Margin 70% 60%
Total Assets €2,000 mln $1,000 mln
Employees n.a. 100
The decision-making process involves:
Comparing financial performance (profitability, efficiency).
Considering missing information (Red lacks employee data).
Assessing external factors (currency differences, market positioning).
Before making a final decision, additional factors like liabilities, growth potential, and
industry risks should be examined.
Key questions regarding international accounting regulations:
Should all countries follow the same accounting standards?
The basis of traditional financial statement analysis is comparison. Comparing
company performance with similar companies in the same industry (or with the
industry average) is easier if the company’s uses the same accounting rules for
measuring the financial position at a specific date and the performance of the
company over a period.
, Is flexibility beneficial, or does it hinder comparability?
While core principles of financial reporting should ideally remain consistent, allowing
some diversity can accommodate specific national business environments and
regulatory requirements. This flexibility can lead to more relevant disclosures and
financial representations that accurately reflect local conditions.
The key lies in balancing global consistency with local relevance, ensuring
fundamental principles are consistently applied while adapting specifics to reflect
diverse economic landscapes.
Who should set these standards, and what criteria should be used?
Ideally, an independent, transparent organization with expertise in international
finance and accounting should set global standards—avoiding biases or undue
influence from individual nations or commercial entities. An authoritative body like
the International Accounting Standards Board (IASB) strives to balance interests from
various stakeholders, creating credible standards accepted widely across
international borders.
How Should the Standard Setter Determine What the ‘Right’ Standards Are?
Determining the 'right' standards involves extensive consultation and dialogue with a
broad spectrum of stakeholders, including financial professionals, regulators,
businesses, and investors from around the world.
Standards should be dynamic, evolving through research, technological advancement,
and feedback, ensuring they remain relevant and capable of addressing emerging
global financial issues.
While IASB (International Accounting Standards Board) and IFRS address these concerns,
ongoing debates continue about standardization vs. country-specific needs.
The International Accounting
Standards Board (IASB) operates
under a structured hierarchy:
This structure ensures transparency,
consistency, and credibility in
financial reporting worldwide.
, The IASB is the primary body responsible for developing international financial reporting
standards (IFRS).
Key characteristics:
Private sector entity: Unlike government agencies, the IASB operates independently,
which helps it remain neutral and globally applicable.
Under the IFRS Foundation: The IFRS Foundation oversees IASB’s work and ensures
its legitimacy.
No direct governmental responsibility: The IASB sets standards, but governments and
regulatory bodies decide whether to adopt and enforce them.
No enforcement power: Unlike financial regulators (e.g., the SEC in the U.S.), the
IASB cannot impose penalties for non-compliance.
Develops key accounting standards:
o IAS (International Accounting Standards): Older standards before IFRS.
o IFRS (International Financial Reporting Standards): Modern principles-based
framework.
o SIC (Standing Interpretations Committee) & IFRIC (IFRS Interpretations
Committee): Provide guidance on how to interpret and apply IFRS standards.
These aspects emphasize the IASB’s role as a standard-setter rather than an enforcer.
The IASB follows a structured due process to ensure transparency, stakeholder involvement,
and credibility in setting international standards.
Stages of the Due Process:
1. Research Phase – Collecting input from stakeholders:
o Standards Advisory Council & Working Groups – Experts provide technical
insights.
o International groups – Includes analysts, auditors, preparers, and regulators.
o Local standard-setters & political groups – Address region-specific concerns.
2. Agenda Decision – The IASB decides whether a new standard or amendment is
necessary.
3. Proposal Stage:
o Discussion Paper (DP, Optional) – A preliminary document seeking feedback.
o Exposure Draft (ED) – The first formal draft of a new standard, open for public
consultation.
4. Public Consultation – Stakeholders provide input, which helps refine the standard.
5. Finalization:
o IFRS Standard is published – Once finalized, the new or amended standard
becomes official.
