Support For Mandatory Firm Rotation

The globalization of business activity has resulted in the need for a uniform set of accounting rules in all countries. With U.S. corporations doing so much business in other countries, it is imperative that the SEC and international regulatory boards devise a set of rules and regulations that would benefit both parties. If this did not happen, international companies would be able to do whatever they wanted without repercussion because of the discrepancies in the differing sets of rules. Accomplishing this universal set of rules would allow companies to list securities in any market without having to prepare more than one set of financial statements. There have been so many

Fair value measurement is one of the models which provide guidance on how entities should determine the fair value of financial instruments for reporting purposes. This paper discusses the Financial Accounting Standards Board (FASB) Exposure Draft issued on December 3, 2015 which proposed amendments to Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements. The paper analyzes some of the key points of the exposure draft, among other things, the history and development the concept of fair value management, the necessity of the amendments to the topic, the provisions and conceptual framework of the fair value measurement. The paper also compares and contrasts the FASB Topic 820 formerly known as to the International Accounting Standards (ISA) No. 13 of the International Financial Reporting (IFRS). Finally, the paper concludes on the response to the exposure draft.

UK’s IFRSs are designed to make it easier to compare the performance of organizations in different countries, rather than each country maintaining its own GAAP, which makes such comparisons difficult. All listed EU companies have been required to use IFRSs since 2005. The adoption of IFRSs by the private sector is expected to have various benefits for both companies and investors; including (1) UK’s IFRSs will remove the need for companies with foreign subsidiaries to translate the accounts for consolidation with the parent company accounts. Also (2) it will be easier for investors to make informed decisions about the performance of companies in different countries because of the increased transparency and a better understanding of financial statements.

SFAC No. 8 addresses the cost constraint on useful financial reporting, “Cost is a pervasive constraint that standard setters, as well as providers and users of financial information, should keep in mind when considering the benefits of a financial reporting requirement.” (SFAC No. 8 BC 3.47) However, the ability to place a dollar value and fully enumerate a cost or benefit is almost an impossible task for standard-setters. Additionally, there is no way to successfully identify and measure all of the economic consequences associated with a new standard. The FASB should be applauded though for advancing uniformity in accounting standards, however; uniform financial reporting suggests a one size fits all approach. “Smaller, non-publicly listed firms (and their auditors) argue that accounting standards are formulated mainly for larger, publicly traded firms” and that “compliance costs are disproportionately higher and the

Auditor independence and a prohibition on audit firms offering value-added (read "conflict of interest") services

Auditing firms are no longer able to focus primarily on selling additional services. Instead, they are now concerned with providing excellent service to the client. This has resulted in additional tax and financial reporting

4. The SEC wants to understand the reasons behind the auditor change and what they might say about a company’s health and operations. They want to see if the client initiated auditor change was because of things like disagreements over internal control weaknesses or reliability of financial reporting. The registrant must specifically comment on whether the company had any significant disagreements with its auditors over accounting principles, auditing procedures, or other financial reporting matters. The dismissed audit firm must communicate with the SEC, stating whether it agrees with

The first is that raised cost through the additional time spent and additional set up costs as well. It affects in both auditors and managers of firms. For the manager, ‘New auditors, they argue lack sufficient knowledge regarding firm-specific risks and, as a consequence, audit failures would likely increase.’ (782, purple) Supposing firm does not need to change related audit company, auditors might know better about firm specific expertise as well as they might not be fully understand of financial statements. For the auditors, if compulsory audit firm radiation implemented under the government regulation, new audit firms should investigate new client to analyze their characteristics and management flows. Therefore it could be concluded that will be high costly because of additional costs such as human resources and time to catch up compared with keeping one audit firm

Baruch Lev and Feng Gu authors of “The End of Accounting and The Path Forward for Investors and Managers” indicate that over the past 110 years, the structure and content of financial reports has not changed, and that the role that these reports play in influencing the decisions of investors has greatly diminished. Lev and Gu make a case that non-transaction events that are not captured by the financial reports such as those disclosed through 8-k filings with the Securities and Exchange Commission (“SEC”) have a greater impact on stock prices, and thus more useful to investors. In addition, they suggest that one of reasons for the decline in usefulness of financial reports stems from the increase of estimates that has made its way into these reports (Lev and Gu 2016).

This paper addresses the current criticism of the exportation of U.S. corporate governance norms under the Sarbanes-Oxley Act, focusing on the application of the audit committee requirement to foreign issuers from European countries with codetermination laws, and the

Basically, in critiquing and analyzing the roles of the key leaders of corporate governance to assess the function of ethics in compliance, key concepts and the best practices of Calpine Corporation have also been considered to help MFSI. According to Chew and Gillan (2005), “During the past decade many CEOs of large companies have become highly visible public figures,” and while MFSI is still evolving, pressure to act appropriately exists (p. 1).

Disclosure required by most regulatory authorities in developed economies may be classified into two categories: (a) disclosure related to operations in the securities markets; and (b) disclosure required by publicly held companies subject to the jurisdiction of the regulatory authority. Disclosure related to the direct operations of securities markets concerns the relationships of security brokers and representatives to the corporate entities issuing the securities traded. Disclosure required by publicly held corporations subject to the jurisdiction of the regulatory authority includes almost all of what is generally considered to be the public disclosure requirements for corporations. These disclosure requirements include information pertaining to, “(a) the relationship between the management of a corporation and its auditors; (b) the nature of relationships between a corporation and any of its shareholders; (c) institutional investment relationships; (d) proxy requirements; (e) board and committee composition; (f) compensation for the board of directors; and (g) management compensation” (Securities Exchange Act of 1934 Title 12). Shareholder rights and proxy disclosure requirements resulted from the belief that the management of a public corporation can effectively frustrate shareholders’ efforts to participate in the management of

Another threat to the independence of the auditors is a phenomenon which took place around 3 or 4 decades ago. During that time the number of firms which required audits stopped expanding, the codes that prohibited advertising accounting firms were abolished, which enabled all these firms to steal market from each other. Furthermore, a lot of audit bodies engaged into consulting, bookkeeping assistance, investigation and tax advices. This trend resulted in

PWC US (2012) believe that the mandatory audit firm rotation should not be adopted. They imagine that this system will harm and not improve audit and financial reporting quality. Barber (2014) agrees and says that “Enforcing mandatory rotation may lead to a reduced quality.” Furthermore it will lead to an inevitable rise in audit fees. Furthermore PWC US suppose it can lead to undermining reforms that have benefited audit quality such as “the role of the audit committee in governing the audit firm-public company relationship.” (PWC US, 2012). According to PWC US (2012) giving the responsibility for overlooking a company’s auditor to an

As explained by Schelker (2013), the agency problem between the owners and the management of a firm is at the heart of the corporate governance literature. Hence, there is a need for a