Accounting Chapter 5 Homework Health And Safety Topics Covered

Chapter 5

Reporting and Disclosure

Discussion Questions

1. Transparent financial reporting means that timely and accurate disclosures are made on all

important matters affecting a company’s financial position and performance. It implies

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.

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

4. The simple answer is that mandatory disclosures are corporate disclosures made in response

to regulatory requirements (for example, rules issued by national regulators or stock

exchanges), and that voluntary disclosures are purely discretionary in nature. The distinction

(1) Managers in highly competitive industries may be less forthcoming than managers in

less competitive industries due to the expected cost of releasing information of potential use

5. Triple bottom line reporting refers to reporting on a company’s economic, social, and

environmental performance. It is a form of social responsibility reporting designed to

6. Often we expect to observe less voluntary disclosure by companies in emerging market

countries than by those in developed countries:

a. Equity markets are relatively less developed in many emerging market countries,

resulting in lower total demand for company information by investors and analysts.

7. The two broad objectives of investor-oriented equity markets are investor protection and

8. It certainly is possible that more required disclosure will further encourage investor

participation in capital markets by providing more and better information on which to base

investment decisions. Benefits of increased investor participation include increased

9. Forecasts of revenues and income are relatively uncommon because there can be legal

repercussions if forecasts are not met. Forecasts rely on subjective estimates of uncertain

10. Corporate governance refers to the structure of relationships and responsibilities among

shareholders, board members, and corporate managers. Investors and financial analysts use

information about a company’s corporate governance (for example, whether an audit

Exercises

1. Daimler’s Outlook section in its 2008 annual report has the following forecasts:

a. Global demand for automobiles will decrease 10 percent in 2009. Demand for cars and

light trucks and commercial vehicles will decrease in the major market of the United

States, Western Europe, and Japan. (p. 83)

b. Unit sales of cars, trucks, vans, and busses will all decrease in 2009. Overall, there will

For most items, Daimler has a two-year forecast horizon and directional (increase or

2. IFRS 8 requires that the following items be disclosed for each reportable segment:

a. Profit or loss

b. Assets

c. Liabilities

d. Particular income and expense items if such measures are regularly provided to the chief

operating decision maker

e. Reconciliations of reportable segment revenues, profit or loss, assets, and liabilities to

consolidated totals

(A reportable segment is an operating segment about which separate financial information is

available that is evaluated regularly by management in assessing segment performance and

deciding how to allocate resources to operating segments.)

In addition to the above items, information must also be disclosed about:

3. a. Roche’s total number of employees grew slightly at 1.88 percent. Most of the employees

b. Latin America and North America have the highest turnover rates at 14.3 percent and

c. Roche states that “a diverse workforce is critical to the success of a global company…and

d. Outside investors may find this information useful because it speaks to the welfare of

4. The overall conclusion is that Roche’s safety record is stable whereas its environmental

record has improved somewhat.

Safety:

The accident rate is comparable between 2009 and 2008, but the rate for these years is lower

than 2007. Occupational accidents are comparable between 2009 and 2007, but the number of

Environmental:

Overall energy use increased in 2009 and 2008 compared to 2007, but energy use per CHF of

sales and per employee is stable over the three years. Greenhouse emissions increased in

2009 and 2008 compared to 2007, but emissions per CHF of sales is lower in 2009and 2008

5. a. According to the Web site, the objective of the International Auditing and Assurance

Standards Board (IAASB) is to serve the public interest by:

1. Setting high quality standards on auditing, assurance, quality control, and related

b. According to this Web site, auditing standards refer to the audit or review of historical

c. PricewaterhouseCoopers states that Roche’s internal sustainability reporting guidelines

6. a. Corporate social responsibility is about how companies conduct themselves in relation to

b. Some argue that “the business of business is business.” In conducting their business,

companies provide huge and critical contributions to society. Among these are

productivity gains, innovation and research, employment, and human capital

c. Whether companies ought to report on their social responsibility activities probably

d. As noted in c., the relevance of CSR disclosures for outside investors is that a company’s

7. a. The performance indicators recommended in the GRI guidelines are as follows:

ECONOMIC PERFORMANCE INDICATORS

Aspect: Economic Performance

Core

EC1 Direct economic value generated and distributed, including revenues, operating

costs, employee compensation, donations and other community investments, retained

earnings, and payments to capital providers and governments.

Aspect: Market Presence

Add

EC5 Range of ratios of standard entry level wage compared to local minimum wage

at significant locations of operation.

Core

EC6 Policy, practices, and proportion of spending on locally-based suppliers at

significant locations of operation.

Aspect: Indirect Economic ImpactsC

EC8 Development and impact of infrastructure investments and services provided

ENVIRONNMENTAL PERFORMANCE INDICATORS

Aspect: Materials

Core

EN1 Materials used by weight or volume.

Core

Aspect: Energy

Core

EN3 Direct energy consumption by primary energy source.

Aspect: Water

Core

EN8 Total water withdrawal by source.

Aspect: Biodiversity

Core

EN11 Location and size of land owned, leased, managed in, or adjacent to, protected

areas and areas of high biodiversity value outside protected areas.

Core

EN12 Description of significant impacts of activities, products, and services on

Aspect: Emissions, Effluents, and Waste

Core

EN16 Total direct and indirect greenhouse gas emissions by weight.

Core

EN23 Total number and volume of significant spills.

Add

EN24 Weight of transported, imported, exported, or treated waste deemed hazardous

under the terms of the Basel Convention Annex I, II, III, and VIII, and percentage of

transported waste shipped internationally.

Add

Aspect: Compliance

Core

EN28 Monetary value of significant fines and total number of nonmonetary sanctions

for noncompliance with environmental laws and regulations.

Aspect: Transport

SOCIAL PERFORMANCE INDICATORS

Labor Practices and Decent Work

Aspect: Employment

Core

LA1 Total workforce by employment type, employment contract, and region.

Core

LA2 Total number and rate of employee turnover by age group, gender, and region.

Add

LA3 Benefits provided to full-time employees that are not provided to temporary or

part-time employees, by major operations.

Aspect: Labor/Management Relations

Aspect: Occupational Health and Safety

Add

LA6 Percentage of total workforce represented in formal joint management–worker

health and safety committees that help monitor and advise on occupational health and

safety programs.

Aspect: Training and Education

Core

LA10 Average hours of training per year per employee by employee category.

Aspect: Diversity and Equal Opportunity

Core

LA13 Composition of governance bodies and breakdown of employees per category

according to gender, age group, minority group membership, and other indicators of

diversity.

HUMAN RIGHTS PERFORMANCE INDICATORS

Aspect: Investment and Procurement Practices

Core

HR1 Percentage and total number of significant investment agreements that include

human rights clauses or that have undergone human rights screening.

Aspect: Nondiscrimination

Core

HR4 Total number of incidents of discrimination and actions taken.

Aspect: Freedom of Association and Collective Bargaining

Core

Aspect: Child Labor

Core

HR6 Operations identified as having significant risk for incidents of child labor, and

measures taken to contribute to the elimination of child labor.

Aspect: Forced and Compulsory Labor

Aspect: Security Practices

Add

HR8 Percentage of security personnel trained in the organization’s policies or

procedures concerning aspects of human rights that are relevant to operations.

Aspect: Indigenous Rights

SOCIETY PERFORMANCE INDICATORS

Aspect: Community

Core

SO1 Nature, scope, and effectiveness of any programs and practices that assess and

manage the impacts of operations on communities, including entering, operating, and

exiting.

Aspect: Corruption

Core

SO2 Percentage and total number of business units analyzed for risks related to

corruption.

Aspect : Public Policy

Core

SO5 Public policy positions and participation in public policy development and

lobbying.

Add

SO6 Total value of financial and in-kind contributions to political parties, politicians,

and related institutions by country.

Aspect: Anticompetitive Behavior

Aspect: Compliance C

PRODUCT RESPONSIBILITY PERFORMANCE INDICATORS

Aspect: Customer Health and Safety

Core

PR1 Life cycle stages in which health and safety impacts of products and services are

assessed for improvement, and percentage of significant products and services

categories subject to such procedures.

Aspect : Product and Service Labeling

Core

PR3 Type of product and service information required by procedures and percentage

of significant products and services subject to such information requirements.

Add

PR5 Practices related to customer satisfaction, including results of surveys measuring

customer satisfaction.

Aspect : Marketing Communications

Core

PR6 Programs for adherence to laws, standards, and voluntary codes related to

marketing communications, including advertising, promotion, and sponsorship.

Aspect : Customer Privacy

Add

PR8 Total number of substantiated complaints regarding breaches of customer

privacy and losses of customer data.

Aspect: Compliance

Core

PR9 Monetary value of significant fines for noncompliance with laws and regulations

concerning the provision and use of products and services.

b. Most of the emphasis seems to be on social performance disclosures, as this is the area

c. One issue in deciding whether an item of disclosure would be relatively easy or difficult

to make is whether the company’s information system already collects the data. Most of

8. a. According to Volvo’s disclosure, the independence requirements means that only one

person from the company’s management may be a member of the Board, that a majority

b. Only one person (Leif Johansson, CEO) from the company’s management is a member of

the board. Three board members are employee representatives and, therefore, not

also independent of the major shareholders. The composition of Volvo’s board of

directors meets the independence requirements.

c. One member is not independent because he is the CEO. Two other members are not

independent because they represent a major shareholder. However, these latter two are

d. The audit committee has three members and all of them are independent. All three

9. a. The six sections of the OECD Principles of Corporate Governance are as follows:

1. Ensuring the basis for an effective corporate governance framework: The corporate

governance framework should promote transparent and efficient markets, be

2. The rights of shareholders and key ownership functions: The corporate governance

framework should protect and facilitate the exercise of shareholders’ rights.

3. The equitable treatment of shareholders: The corporate governance framework

4. The role of stakeholders in corporate governance: The corporate governance

framework should recognize the rights of stakeholders established by law or through

5. Disclosure and transparency: The corporate governance framework should ensure

6. The responsibilities of the board: The corporate governance framework should ensure

the strategic guidance of the company, the effective monitoring of management by

10. The placement of the 34 countries can be the subject of some discussion with students, and

there are many ways to be “surprised.” For example, some students might be surprised to see

of Brazil (#4) and Mexico (#6) are a surprise. Both are emerging economies and, in general,

reporting and disclosure are not as advanced in emerging economies as they are in developed

Case 5-1 In the Green

1. Many observers believe that concern over climate change is the biggest driver in the

growth of corporate social responsibility. (Note to instructors: see “Just Good Business:

A Special Report on Corporate Responsibility,” The Economist (January 19, 2008): pp.

1–24.) For a variety of reasons, multinational corporations are working harder than ever

to protect their reputations and improve the atmosphere in which they do business.

2. The Global Reporting Initiative (GRI) recommends the disclosure of 30 environmental

performance indicators:

Aspect: Materials

Core

EN1 Materials used by weight or volume.

Core

EN2 Percentage of materials used that are recycled input materials.

Aspect: Energy

Core

EN3 Direct energy consumption by primary energy source.

Aspect: Water

Core

EN8 Total water withdrawal by source.

Aspect: Biodiversity

Core

EN11 Location and size of land owned, leased, managed in, or adjacent to, protected

areas and areas of high biodiversity value outside protected areas.

Aspect: Emissions, Effluents, and Waste

Core

EN16 Total direct and indirect greenhouse gas emissions by weight.

Core

EN17 Other relevant indirect greenhouse gas emissions by weight.

Add

EN24 Weight of transported, imported, exported, or treated waste deemed hazardous

under the terms of the Basel Convention Annex I, II, III, and VIII, and percentage of

transported waste shipped internationally.

Aspect: Products and Services

Core

EN27 Percentage of products sold and their packaging materials that are reclaimed by

category.

Aspect: Compliance

Core

EN28 Monetary value of significant fines and total number of nonmonetary sanctions for

noncompliance with environmental laws and regulations.

Aspect: Transport

Aspect: Overall

Add

EN30 Total environmental protection expenditures and investments by type.

3. Roche discloses most categories of social performance indicators. Disclosures are good in

the categories of energy; water; emissions, effluents, and waste; compliance; and

“overall”. Specifically, there are disclosures of these indicators: (energy) 3, 4, 5, 6,

(water) 8, (emissions, effluents, and waste) 16, 18, 19, 20, 21, 22, (compliance) 28, and

(overall) 30. Some of the nondisclosures in these categories could be because they are not

applicable to Roche. (It is difficult to know for sure whether a nondisclosure means that

there is nothing to disclose [i.e., the item is not applicable] or whether an item could be

4. O.J.’s company should be able to match, and even exceed, Roche’s disclosures. It is

recommended that the company report performance indicators in all categories, as

follows:

a. Materials: materials used by weight/volume, and percentage of recycled materials

used

e. Emissions, effluents, and waste: greenhouse gas, ozone-depleting, and other

significant air emissions, and initiatives to reduce them; water and waste discharge

Case 5-2 Seeing Is Believing

1. Characteristics that predict relatively low disclosure levels in Mexico:

a. Sources of finance (Chapters 2 and 4). The private sector in Mexico has been largely

financed by family groups and banks. These factors are highly correlated with low

financial disclosure levels.

b. Government involvement (Chapters 2 and 4). Although some industries have been

privatized recently, many enterprises in Mexico still are owned by the government, and

the banks and family groups that finance the private sector traditionally have maintained

very close ties with public officials.

2. Characteristics that predict relatively high disclosure levels in Mexico:

a. The historically close connection between the Mexican and U.S. accounting professions

(Chapter 4) would encourage disclosure practices in Mexico to emulate those in the

United States, which are the highest in the world.

b. NAFTA and the resulting closer ties among Mexico, Canada, and the United States have

led to accountants and regulators in all three countries agreeing to pursue harmonization

3. Improvements in Mexican accounting measurement and disclosure practices:

The factors mentioned in answer 2 all are influential in causing improvements in Mexican

accounting measurement and disclosure practices. Specific improvements mentioned in the

text include: