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INTERNATIONAL ACCOUNTINGASSIGNMENT Submitted To:

Acknowledgement

I would like to pay my sincere thanks to, University of Delhi, South Campus for endowing me with the precious insights needed for working out this Project. He has been very instrumental in communicating the core of this project study and thus without his direction, the very inception of this work would not have been possible.

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Q1. Whether a country’s capital market is debt –oriented or equity oriented has a significant impact on the financial reporting that develops in the country, both at the cosmetic and at the substantive level. Choose a equity oriented country and a debt oriented country, and obtain two corporate annual reports from each. Comment on the similarities and the differences of the reports

National differences in disclosure are driven largely by differences in corporate government and finance. In US, UK and other Anglo-American countries, equity markets have provided most corporate financing and have become developed. In these markets, ownership tends to be spread among many shareholders, and investor protection is emphasised. Institutional investors play a growing role in these countries, demanding financial returns and increased shareholder value. Public disclosure is highly developed in response to companies accountability to the public.

In many other countries i.e. France, Germany, Japan and emerging market countries shareholding remains highly concentrated and Banks traditionally have been main source of corporate financing. Structures are in place to protect incumbent management. Banks and other insiders provide discipline. These banks, insiders and others are closely informed about the company’s financial position and its activities. Public disclosures is less developed in these markets and large differences in the amount of information given to large shareholders and creditors vis-a-vis the public may be permitted.

As investors around the world demand more detailed and timely information, voluntary disclosures levels are increasing in both highly developed and emerging market countries.

Equity Oriented - US ( Companies : Intel Corporation, McAfee Inc.)

Debt Oriented – Ireland ( Companies : 1. Glanbia plc, 2. Greencore Group plc )

Equity Oriented Debt Oriented Focus Focus on profitability, future cash

flows, risk.Focus on creditor protection, direct access to information, conservative measurements.

Components of Financial Statements

Two years of consolidated balance sheets, income statements, cash flow statements, changes in equity and accounting and notes.

Similar, except three years required for SEC registrants for all statements except balance sheet.

Balance Sheet Does not prescribe a particular format.

A current/non current presentation of assets and liabilities is used, unless a liquidity presentation provides more relevant and reliable information. Certain minimum items are presented on the face of the balance sheet.

Entities may present either a classified or non -classified balance sheet. Items on the face of the balance sheet are generally presented in decreasing order of liquidity. SEC registrants should follow SEC regulations.

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Income Statement Does not prescribe a standard format,

although expenditure is presented in one or two formats ( function or nature ). Certain minimum items are presented o the face of the income statement.

Present as either a single step or multiple step format. Expenditures are present by function. SEC registrants should follow SEC regulations.

Exceptional items Does not use the term but requires

separate disclosures of items that are of such size, incidence or nature that their separate disclosures is necessary to explain the performance of the entity.

Similar, but individual significant items are presented on the face of the income statement and disclosed in the items.

Extraordinary items Prohibited Defined a being both infrequent and

unusual, and are rare. Negative goodwill is presented as an extraordinary item.

Cash Flow Statements-formats and method

Standard headings, but limited guidance on contents. Use direct or indirect method

Similar,but more specific guidance for items included in each category. Direct or indirect method used.

Changes in accounting policy

Comparatives and prior year are restated against opening retained earnings, unless specifically exempted.

Similar

Correction in errors Comparatives are restated and , if the

error occurred before the earliest prior period presented, the opening balances of assets, liabilities and equity for the earliest prior period presented are restated.

Similar

Changes in accounting estimates

Reported in income statement in the current period and future, if applicable.

Similar

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Q2. The proximity or distance between accounting regulations and accounting practice often depends on the level of enforcement. Select two countries and discuss the level of enforcement of financial reporting regulations in each country. Identify the agencies and organisations in place that are responsible for enforcing the financial reporting requirements. How do they compare to one another?

SPAIN

General Enforcement Framework in Spain

The timber framework of Spanish enforcement is composed for these following institutions, which are in charge of issue and establishment mandatory audit and accounting standards and oversight companies, auditors and audit firms.

a) Creation and establishment of high accounting and auditing standards

Accounting standards are written in a General Accounting Book (El Plan General Contable de 1990- PGC). The 1990 PGC is completed with adaptations for specifics sectors and standards about specifics problems as assessment standards, which are approved through Ministerial Orders. Moreover, from 1997 the ICAC issue resolutions with goal of explaining and amplifying concrete aspects which are undeveloped in the 1990 PGC; all these accounting regulations are compulsory.

There are three specific oversight institutions, the DGSFP, BE and CNMV as well as the ICAC oversighting institutions and issuing accounting standards which are compulsory within its specific supervision area.

The AECA issue accounting Standards, which in spite of not being compulsory, they are useful for accounting professional to elaborate financial statements, in so doing they are considered as generally accepted accounting principles in Spain. The AECA’s recommendations influenced the creation of PGC and its posterior modifications. (Canibano et al. 2005)

Audit Technical Rulings in Spain are issued by the ICAC and they are published in the ICAC Bulleting, but the corporations which represent auditors and audit firms participate in the elaboration process.

b) Oversight of companies, auditors and audit firms

There is a formal control in Spain with the aim to increase the information transparency and back the oversight work of accounting standards, which consists of the obligation of depositing the accounts of every Spanish company in the Mercantile Register. These accounts have to contain financial statements, which will be audited in case of being demanded by law1.

If the company does not deposit theirs accounts in the Mercantile Register it will be penalized, the next year, with the closure of the registry, which in spite of not being a monetary sanction is especially effective, because the company isn’t allow to registry any mercantile action such as inscription of new statutes, members of a council, economic transactions and so on, thereby strongly limiting the company activity. Furthermore the ICAC, as stated by law, could penalise the company with a monetary sanction of up to 50 million pesetas. (Jefatura del Estado Espanol 1996)

b.1) Oversight of auditors and audit firms

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The ICAC is the most important institutions in Spain, which is in charge of securing the correct behaviour of the accounting and auditing profession. The ICAC, a governmental institution, was set up under the Audit law, 1988 with two main roles: 1) the accounting regulation and 2) the regulation, control and discipline of the audit profession. (ICAC 1990)

The first role has been explained previously, that’s why this section will deal the ICAC’s role in relation with the audit profession.

The mechanisms of enforcement used by the ICAC to oversight and control the auditors and audit firms are principally reactive, and consist of: a) technical controls which are completed promptly to oversight specific audit work in defence of public interest, b) keeping and managing the Audit Official Registry (Registro Oficial de Auditores de Cuentas- ROAC) and c) monitoring, overseeing and keeping the guaranty incorporate by the recognised auditors. (Jefatura del Estado Espanol 1988a)

From the Financial law, 2002, a proactive revision mechanism has been incorporated; thereby the ICAC is accomplishing quality controls, where the audit work on listed companies will be supervised at least each six years. Furthermore the corporations which represent auditors continue realizing quality controls and they must send theirs results to the ICAC each ended year.

Moreover, from the Financial law, 2002, with the aim to assist in their oversight role of the ICAC, the audit firms and auditors must be communicate to the ICAC, the hours and fee invoice to the client, differing between audit works and other services.

Under the Financial law, 2002, an Auditing Fee per auditing reports has been set up to achieve this proactive activity of oversight. Before this fee the ICAC was financed mainly with the general state budgets.

If the ICAC detect wrong auditing services, it may impose disciplinary action, which ranges from a fine to the expulsion from the ROAC and the disablement as an auditor. From the Financial law, 2002, the sanctions are imposed only to the responsible auditors, and will be published in the ICAC Bulleting when the sanctions are either very strong or strong.

The ICAC investigate cases which affect public interest thought technical controls. Theses cases, which might be a liable to ICAC’s disciplinary action, are selected thanks to quality controls achieved by either corporations which represent auditors or the ICAC and denouncements of any member of the society (CNMV or other Institutions)(Gonzalo Angulo, 2002). Before the Financial Law, 2002, it was enough a denouncement realised by a part legality interest to the ICAC investigate a case, but with the new law this has been suppress.

The audit profession, besides being oversight by an institutional control, is Self-regulated by three corporations which represent auditors which compound the ROAC. The corporations which represent auditors are: the (Registro de Economistas Auditores- REA), the (Registro General de Auditores- REGA) and the (Instituto de Auditores-Censores Jurados de Cuentas de España- IACJCE).

The REA and REGA are expert bodies which depend, repectivaly, of the following corporations the “Consejo General de Economistas” and the “Consejo de Titulados Mercantiles y Empresariales”. The IACJCE is an independent corporation, which is found upon to the Economy and Taxes Minister, and it is the only Spanish corporation with representation in international audit bodies, as a member of the IASB.

Every auditors and audit firms must be registered in one of these three corporations, which are recognised under the Audit Law, 1988 as Statutory recognised professional audit corporations. Their

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responsibilities, besides the continued formation2 of their members are:

a) Elaboration of audit principles, standards and technical procedures which only have validity when they are published by the ICAC.

b) Convocation of unified Examination Access Test to the ROAC. Since the Financial Law, 2002 this test is unified under the ICAC’s supervision.

c) Quality Control of the audit activity of their members. These oversight activities may be assisted in sanctions. The ICAC must be informed of procedures utilised and results found and must taken disciplinary actions if necessary. Since the Financial Law, 2002, the results must be sent at the end of each year.

The big four audit firm are registered in different corporations which represent auditors. Deloitte and Ernst & Young are registered in the REA, and KPMG and Price Waterhouse Coopers in the IACJCE. Likewise all of them are under the oversight of the ICAC, because they are registered in the ROAC.

b.2) Oversight of companies:

In spite of the fact that the ICAC is the most significant institution to secures the compliance with the accounting standards in Spain, there are four specifics oversight institutions to definite areas: 1) The Directorate-General of Insurances and MutualFund Industry (Dirección General de Seguros y Fondos de Pensiones- DGSFP), which oversights and monitors insurance companies 2) The Bank of Spain (El Banco de España- BE), which oversights and monitors banks and financial institutions, and 3) The National Securities and Exchange Comission (Comisión Nacional del Mercado de Valores- CNMV), which oversights and monitors the capital market and the companies with capital market activities 4) The State Auditing Agency (Intervención General de la Administración del Estado- IGAE) It is the body which oversights and monitors public sector entities. Besides preparing their financial statement under the 1990 PGC, they also do it under 1994 PGC for public sector entities.

This paper analyzes enforcement to secure the compliance with accounting standards to listed companies and in so doing the DGSFP, BE and IGAE will not be explained.

The CNMV is an independent body funded by the Government with the Securities Market Law, 1988 that has been revised by the Laws 37/1998 and 44/2002. Its main goal is securing the correct capital market functioning and protects the investor rights whereby this body is authorised to oversight the Spanish capital markets and the activities of both the individual and/or the legal entity, who take part in them and so.

The CNMV’s roles are oversighting and monitoring the stock market activities such as insurance of securities, takeover bids, trading in futures and options and so on; also regulating and oversighting and monitoring investment firms such as listed companies, mutual funds, stockbroker companies and so on. Within this last CNMV’s function is to guarantee the compliance of listed companies’ financial information with the accounting standards.

Regarding securing the compliance of listed companies’ financial information with the accounting standards, the CNMV must ensure that the information is send complete. This information must be audited and contains individual and consolidated financial statements and management report. If this financial information is not sent or is incomplete, the CNMV demand it from the company which will be penalized.

The types of sanctions ranges from a fine to the suspension the company’s securities, if the

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company does not sent the information.

With the aim to protect the investor rights this information is disclose, for this, the CNMV possess its own registry. In addition there are public registries for other kind of listed companies’ information such as prospectuses, sanctions, relevant information and takeover bids.

Moreover the CNMV may review this financial information, which is selected principally, thought qualified audit opinions (CNMV 2004b). Furthermore the CNMV could initiate an investigation either for own initiative or when relevant data is presented by any member of the society to department of investor rights, others oversight institutions, press comments and so on.

In particular, the CNMV does not usually analyze the whole of the financial statements, only the problems referred in qualified audit opinions. For the correct revision of the qualified audit opinions, the CNMV may require additional information from the company about why they have decided to present their financial statements with a qualified audit opinion and how they are going to solve those problems referred to by the auditors. Moreover the amplification of information contained in the memory may be demanded. This required additional information may be found in the web page of the CNMV.

On the other hand, it is compulsory that auditors send a special audit report for each qualified audit report of listed companies. Theses “Special audit reports” are published in one of the CNMV official registries and inform us if the company has or has not solved the problems referred to by the auditors at the close of the first six month period of the next exercise.

From 2000 the CNMV have published a report where the study of the audit qualifications is explain. This report contents a general summary of audit qualifications of listed companies and its general features of the audit qualifications, but does not explain whether the company has been sanctioned by accounting irregularities or whether it has restated its information by CNMV demand or voluntary action.

In addiction from the Financial Law, 2002, is compulsory that a report on its oversight functions is published, within it a small part describes the actions and procedures achieved to secure the compliance of listed companies’ financial information with the accounting standards.

In spite of the fact that the sanctions imposed by the CNMV, are predominantly related with infractions related with fraudulent stock market operation such as accomplishment of disallowed activities, manipulation of prices, using of privileged information and so on. The non compliance of investment firms’ financial information with the accounting standards could be penalised. In 2003 1 in 23 very strong sanctions and 2 in 29 strong sanctions, were imposed for accounting irregularities and in 2004, 0 in 25 very strong sanctions and 1 in 23 strong sanctions were imposed. (CNMV 2004a)

The sanctions may be imposed to any physic and juridical person who had unfulfilled law. There are sanctions very strong, strong and light. The sanctions range from monetary sanctions and/or the disqualification of directors to the suspension the company’s securities (Jefatura del Estado Espanol 1988b)

From the Financial Law, 2002, the very strong and strong sanctions must be published in the Official State Bulletin and furthermore the CNMV publish them within one of its own registries which is found on its own web page. Strong infractions completed before 2002 might not be published. The light sanctions are never published. (Jefatura del Estado Espanol, 2002).

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Austria

Enforcement of Financial reporting regulations in Austria

In Austria, the enforcement of financial reporting regulations is shared by the executive board, the supervisory board, auditors, tax authorities and the courts.Financial statements are prepared by the executive board (Vorstand), which is comprised of the executive management of the company. They are then audited by a statutory auditor and subsequently approved by the supervisory board (Aufsichtsrat), whose duty is to oversee the executive board.19 It is the responsibility of the statutory auditor to ensure that accounting regulations have been complied with. Licensed by the legislator, they act as an impartial and independent control mechanism. However, due to growing concerns about auditor independence and audit standards, the regulation and enforcement of auditing are currently undergoing a significant change, both as far as the scope and purpose of the audit and the role of the auditor and the audit opinion are concerned. Its aim is to make Austrian audit standards internationally comparable, thus fostering the further integration of capital markets. This is part of the general European harmonisation process of financial reporting, especially the European Union’s Financial Reporting Strategy.

Austria lacks an official enforcement agency such as the Financial Reporting Review Panel (FRRP) in the UK, whose sole purpose is the enforcement of financial reporting requirements. Sir David Tweedie, the Chairman of the Accounting Standards Board (ASB), explains the establishment of the FRRP as a direct result of economic and commercial conditions, namely “the abuses of accounting rules that occurred in the 1980s” in the UK. Other countries, in including Austria, which did not experience the same problems, thus have not felt the need to “set in place the same regulatory protections as the UK” (McBarnet and Whelan, 1999, pp. 250–251). Another reason might be that Austria has a creditor-orientated accounting system in which the verification of inside information to outside parties does not have the same importance as in a shareholder-orientated system.

The following sections focus on the role of the courts and the tax authorities in the regulation and enforcement process by means of providing an analysis of the type and extent of their involvement.

The Role of the Courts in the Regulation and Enforcement of Financial

Reporting

THE INTERRELATIONSHIP BETWEEN FINANCIAL AND FISCAL REPORTING

As mentioned previously, courts act as regulatory agents by means of interpreting the financial reporting regulations of the Commercial Code (§§189–283) in the course of judicial rulings. The following section examines their role in the regulation and enforcement process of accounting regulations in more detail by means of analyzing court rulings and interpretations. Due to the interrelationship between financial and fiscal reporting in Austria, the sections of the Austrian Income Tax Law, which are interrelated with financial reporting (§§4–14), also have to be included in the analysis.20 The inclusion of the latter is important since it causes the Administrative Court (Verwaltungsgerichtshof) to be involved in the interpretation of financial and fiscal reporting regulations. This is a direct result of the particular structure of both German and Austrian Income

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Tax Law, which is interrelated with the Commercial Code on three different levels (Beisse, 1980, p. 637):

(1) Income Tax Law contains financial reporting regulations which are being transformed into fiscal reporting regulations. This leads to the influence of financial on fiscal reporting.

(2) It further includes fiscal reporting regulations which are congruent with financial reporting regulations.21 This entails another influence of financial on fiscal reporting.

(3) It also contains autonomous, separate fiscal reporting regulations, which differ from financial reporting regulations. Since they have precedence over the corresponding financial reporting regulations,22 this can result in the influence of fiscal reporting on financial reporting.

Due to this particular structure of Income Tax Law, interpretations and rulings of the Administrative Court concerning both financial (1 and 2) and fiscal (3) reporting regulations impact on the interpretation and advancement of financial reporting regulations. Beisse (1980, p. 645) describes the nature of the involvement of the Administrative Court in the regulation and enforcement of financial reporting regulations in the German context:23

. . . due to the specific structure of our [German] accounting regulations the Federal Tax Court [Bundesfinanzhof] carries the main burden of interpreting and advancing financial reporting regulations. Hence, the relevance of financial accounting to fiscal accounting determined by the Maßgeblichkeitsprinzip has proven to be a double-edged sword. On the one hand it causes a strong influence of commercial law onto tax law. On the other hand it implies a corresponding extensive relevance of fiscal judicial interpretations and rulings on financial accounting. . . . this legal situation leads to an ongoing high court judicial interpretations and rulings in this important area of commercial law by means of fiscal trials. (my translation)

However, it should be noted that this relationship between financial and fiscal accounting is limited to individual accounts (HGB, §§189–243), which are the sole basis for tax calculation.

Conclusion

In Austria, regulation takes place through the law, the courts, and the academic and professional community. These regulatory instruments are interrelated, with the law having an impact on both legal interpretations and academic and practical research, and research influencing the judicial interpretations and rulings. The involvement of courts in the regulation and enforcement of accounting regulations has been found to occur infrequently and mainly as a by-product of company litigation issues.What is more, almost fifty percent of court cases are not concerned with the enforcement of accounting regulations, but with the enforcement of filing regulations. The Administrative Court, in its role as the highest court of appeal in tax matters, emerges as by far the most active enforcement agent in Austria. Thus, the majority of enforcement activity takes place indirectly through the enforcement of fiscal requirements. This is due to the strong economic incentives of both parties involved. These results might be attributed to Austria’s creditor-orientated accounting system in which the verification of inside information to outside parties does not have the same importance as in a shareholder-orientated system.

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Q3. Obtain the annual reports of three companies (from the same industry) that prepare their financial statements using international accounting standards (IASs). Compare the disclosures, accounting policies and practices, and informational content between the three companies. In your opinion, are they truly comparable? Based on this comparison, are IASs an effective global standard?

BAHRAIN TOURISM COMPANY B.S.C Basis of preparation:

1. Prepared in accordance with International Financial Reporting Standards (IFRS) and the provisions of the Companies Law, Cap. 113 and the requirements of the Bahrain Commercial Company Law 2001.

2. The financial statements have been drawn up from the accounting records of the Company under the historical cost convention, except for certain available for sale investments which are stated at fair value.

3. The Company classifies its expenses using the nature of expense method.

Hotel revenue

1. Income from hotel operations is recognised when services are rendered and when facilities

are provided to customers. Receivables

1. Receivables are recorded at cost, being the fair value of services rendered and facilities

provided; less provision for impairment. Inventory

1. Inventory is valued at lower of cost and net realisable values with due allowance being made for damaged and deteriorated items. Cost is determined on a weighted average basis and includes expenditure incurred in acquiring inventories and bringing them to their existing location and condition. Net realisable value is the estimated selling price in the ordinary course of business, estimated selling expenses.

Foreign currency translation

(a) Transactions and balancesMonetary assets and liabilities are translated into Bahraini Dinars at year end exchange rates. Transactions in foreign currencies during the year are converted at the rate ruling at that time. Foreign exchange gains and losses are recognized in the income statement. Translation differences for non-monetary items, such as equities classified as available-for-sale investments, are included in a fair value reserve in equity.

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Property, plant and equipment

Property and equipment held for operational purposes are carried at cost less accumulated depreciation and any impairment losses. The cost of the properties and equipments includes the cost of bringing them to their present location and condition. Direct costs are capitalized until properties and equipments are ready for use. Capital work-in-progress comprises the cost of properties and equipments that are not yet ready for their intended use on the reporting date. The cost of additions and major improvements are capitalised.

Depreciation

Land is not depreciated. Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of property and equipment as follows:

Hotel and conference centre buildings 40 years

Hotel and conference centre furnishings and equipment 2 - 10 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. When an item of property and equipment is sold or discarded, the respective cost and accumulated depreciation relating thereto are eliminated from the statement of financial position, the resulting gain or loss being recognized in the income statement.

Impairment of Assets.

An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of an asset’s net selling price and value in use.

Related Party Transactions

Transactions with entities controlled by directors, or over which they exert significant influence, are conducted on a normal commercial basis. There were capital expenditure payments for hotel projects made to director-controlled entities where the directors were interested. During the year, the Company has rented the office of one of its divisions to its associate company.

Segmental Reporting

The Company has three distinct operating segments, Hotel, Investments and Travel, which are the Company’s strategic business units. The strategic business units offer different products and services, and are managed separately because they require different strategies for management and resource allocation within the Company.

The following summary describes the operations in each of the Company’s operating reportable segments:

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• Hotel: Provision of hotel facilities and other services to individual and corporate customers;

• Investments: This segment is focused on investing the surplus funds of the Company in investments in equity shares, mutual funds, and associates and monitoring the performance of the portfolio on a timely basis. The investments are not traded, but held as available for sale securities.

National Hotels Company B.S.C.Basis of preparation:

1. Prepared in accordance with International Financial Reporting Standards (IFRS) and the provisions of the Companies Law, Cap. 113 and the requirements of the Bahrain Commercial Company Law 2001.

2. The financial statements have been drawn up from the accounting records of the Company under the historical cost convention, except for certain available for sale investments which are stated at fair value. The Company classifies its expenses

Receivables

1. Trade receivables are stated at original invoice amount less a provision for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when there is no possibility of recovery.Net realisable value is based on estimated selling price less any further costs expected to be incurred on completion and disposal.

Inventories

Inventories of food and beverage are stated at the lower of cost and net realisable value. Inventories of maintenance stores are stated at cost less provision for obsolescence. Costs are those expenses incurred in bringing inventories to their present location and condition and are determined on a first-in-first-out basis.

Property, plant and equipment

1. Property, plant and equipment, except land, is recorded at cost less accumulated depreciation and any impairment in value. Land is carried at revalued amounts. Land and capital work-in-progress are not depreciated.

2. Revaluation of land is normally carried out every three years. On the subsequent sale or retirement of revalued land, the additional revaluation surplus is transferred to retained earnings.

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Depreciation- Buildings 25 to 40 years - Improvements to buildings 5 to 10 years - Furniture, fixtures and equipment 5 to 7 years - Plant and machinery 4 to 20 yearsThe carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

Impairment of Assets

An assessment is made at each statement of financial position date to determine whether there is objective evidence that a specific financial asset may be impaired. If such evidence exists, any impairment loss is recognised in the statement of income. Impairment is determined as follows:

a) For assets carried at fair value, impairment is the difference between cost and fair value, less any impairment loss previously recognised in the statement of income.

b) For assets carried at cost, impairment is the difference between carrying value and the present value of future cash flows discounted at the current market rate of return for a similar financial asset.

Foreign currency translation

(a) Transactions and balances

Transactions in foreign currencies are recorded at the functional currency rate of exchange prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rate of exchange ruling at the statement of financial position date. All differences are taken to the statement of income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. Translation gains or losses on non-monetary available for sale investments carried at fair value are included in equity as part of the fair value adjustment on available-for-sale investments. Translation gains or losses on non-monetary trading investments carried at fair value are included in the statement of income as part of the net change in the value of managed portfolios.

Related Party Transactions

Related parties represent the associated company, major shareholders, directors and key management personnel of the Company, the operator of the hotel and entities controlled, jointly controlled or significantly influenced by such parties.

Segmental Reporting

The Company’s operating businesses are organised into the following segments:

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Hotel business and corporate - Room rental, food and beverage sales, conference and events, and head office expenses.

Investments - Income from investments including associate and term deposits.

Segment assets include all operating assets used by a segment and consist primarily of property, plant and equipment, inventories, available for sale investments, managed portfolios and accounts receivable. Whilst the majority of the assets can be directly attributed to individual business segments, the carrying amounts of certain assets used jointly by two segments is allocated to segments on a reasonable basis.

IFA Hotels & ResortsBasis of preparation

1. The consolidated financial statements of the group have been prepared in accordance with International Financial Reporting Standards.

2. The consolidated financial statements are prepared under the historical cost convention except for the measurement at fair value of investments at fair value through statement of income, available for sale investments and investment properties.

Basis of consolidation

1. The consolidated financial statements incorporate the financial statements of the parent company for the year ended 30 June 2009, and the financial statements of its subsidiaries prepared to that date, or to a date not earlier than three months of the parent company’s year end using consistent accounting policies.

Revenue recognition

1. Revenues Revenue is recognised to the extent that it is probable that the economic benefits will flow to the group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

(a) Revenue from hotel operations and other related services

Revenue from hotel operations and related services is recognised when services are rendered.

(b) Revenue from sale of properties

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Revenue on sale of condominiums is recognised on the basis of percentage completion using the certificate provided by the independent lead consultants of the respective projects

Impairment of Assets

An assessment is made at each balance sheet date to determine whether there is objective evidence that a specific financial asset or a group of financial assets may be impaired. If such evidence exists, any impairment loss is recognised in the consolidated statement of income. Impairment is determined as follows:

a) For assets carried at fair value, impairment is the difference between cost and fair value;

b) For assets carried at cost, impairment is the difference between carrying value and the present value of future cash flows discounted at the current market rate of return for a similar financial asset; and

c) For assets carried at amortised cost, impairment is the difference between carrying amount and the present value of future cash flows discounted at the original effective interest rate.

Reversal of impairment losses recognised in prior years is recorded when there is an indication that the impairment losses recognised for the financial asset no longer exist or have decreased and the decrease can be related objectively to an event occurring after the impairment was recognised

Property, plant and equipment

1. Property, plant and equipment, are stated at cost less accumulated depreciation and impairment losses.DepreciationDepreciation is calculated to write-off the cost less the estimated residual value of property, plant and equipment on a straight-line basis over their estimated useful lives as follows:Buildings 50 years Plant and Equipment 5-7 years Motor vehicles 4-5 years Furniture and fixtures and equipment 5-7 years Yacht 10 yearsLease hold property is depreciated over the period of the lease. No depreciation is provided on freehold land.

Tax

Deferred taxation is provided in respect of all temporary differences. Deferred tax assets are recognised in respect of unutilised tax losses when it is probable that the loss will be used against future profits.

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Foreign currency translation

(a) Transactions and balances

Transactions in foreign currencies are initially recorded in the functional currency rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to “foreign exchange gain/loss” in the consolidated statement of income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined

Segmental Reporting

The group operates in four main geographical segments: Kuwait, Asia and other Middle Eastern countries, Africa, United Kingdom (UK) and Europe.

Related Party Transactions

Related parties represent the ultimate parent company, associates, joint ventures, directors and key management personnel of the group, and other related parties such as subsidiaries of the ultimate parent company (fellow subsidiaries), major shareholders and companies in which directors and key management personnel of the group are principal owners or over which they are able to exercise significant influence or joint control.

Are they truly comparable?

Since the companies follow IFRS, the core principles remaining consistent, the reports are the comparable in the basic theme. The methods of disclosures, the type of reporting procedure and the tools and methods used are true to the once promulgated by IFRS.

However, there are differences in various areas because of Company Law of the jurisdiction, the tax law practices in particular countries and also the segment and geography the companies operate. Also the type of operation methodology followed by companies leaves a distinct flavour to the reports prepared.

IAS an effective global standard?

The IAS because of several similarities makes the reports comparable and consistent across various jurisdictions. Leaving aside political and social factors, the analysis of report leads to better result in lesser effort. Therefore, the step towards adoption of IAS by countries is a useful step which would boast efficiency and ease the analysis and comparability of the reports.

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Q4. Log onto the website of an accounting organisation of your choice and describe some of the steps this organisation has taken to promote international harmonisation, including any cooperative activities with other organisations and countries

Singapore-Harmonisation

In Singapore, the Institutes of Certified Public Accountants of Singapore (ICPAS) issued a Statement of Recommended Accounting Practices, which regulates matters of disclosure in 1977. This statement provides guidance to companies for complying with the disclosure requirements found in the Singapore Companies Act 1967. Singapore Companies Act governs all Singapore business corporations and branches of foreign companies In 1977, ICPAS set the rules of accounting and reporting in Singapore.

Standards are issued as Statements of Accounting Standards (SASs) and Statements of Recommended Accounting Practices (RAPs). In 1994, ICPAS indicated that it was necessary to comply with these standards for financial statements to provide a true and fair view, in accordance with theSingapore Companies Act. While compliance with the standards is expected, the SASs are not legally binding and are not intended as a rigid, comprehensive set of rules. However, professional judgement should be exercised in their application

The ActorsIn Singapore, the private sector body, ICPAS, has been at the forefront of standard setting activities. Beside ICPAS, many other organization participate directly or indirectly in accounting standard setting, such as the Registrar of Companies and Business, the Monetary Authority of Singapore, the Public Accountant Board, the Stock Exchange of Singapore, and the Singapore Federation of Chambers of Commerce and Industry.

Institute of Certified Public Accountants of Singapore (ICPAS)The ICPAS is the national organization of the accounting profession in Singapore. This is the only official accounting body in Singapore and responsible for all professional matters of the accounting profession. It was formed in June 1963 as the Singapore Society of Accountants under the Accountants Act. The Society was reconstituted and renamed the ICPAS on 11 February 1989, under the Accountants Act 1987. The ICPAS promulgates the accounting standards and auditing standards in Singapore

The ICPAS' network of members span the globe and its international outlook and connections are reflected in its membership of regional and international professional organizations such as the AFA, IASB and IFAC.

Registrar of Companies and BusinessThe principal task of Singapore’s company registrar is to maintain records of domestic companies, as stipulated by company laws. Registrar of Companies and Business in Singapore ensures that companies comply with specific disclosure requirement found in company laws. In Singapore, exclusively designated company registrars handle company administration

Monetary Authority of Singapore (MAS)MAS, as the statutory regulator, has the authority to regulate all elements of monetary, banking and financial aspects of Singapore. It was formed in 1971 by the parliament of Singapore. The MAS monitors compliance with the laws and regulations that govern the integrity of the markets, seeks

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enforcement of the laws and proposes amendments in order to keep them relevant in a changing market environment. MAS' mission is to promote sustained and non-inflationary growth of the economy, as well as foster a sound and progressive financial services sector. Several MAS’ objectives as follows:

To conduct monetary policy and to manage the official foreign reserves and the issuance of government securities

To supervise the banking, insurance, securities and futures industries, and develop strategies in partnership with the private sector to promote Singapore as an international financial centre

To build a cohesive and integrated organization of excellence.

Public Accountant Board (PAB)PAB is the regulatory body of the accountancy profession in Singapore. It was formed in 1989, following the restructuring of the Singapore Society of Accountants. The 10-member Board is responsible for the registration and discipline of practising members in Singapore. It acts as a watchdog body by checking irregularities in the professional conduct and practices of ICPAS practising members. PAB is the government body that licenses practising accountants. Law and professional self-regulation regulate the accountancy sectors in Singapore. Regulations arefound in the Accountants Act, whilst the rules are found in PAB rules 1989 and the ICPAS Rules 1989, respectively.

Stock Exchange of Singapore (SES)SES was formed on 1st of December 1999 by the merger of two well established and respected financial institutions, SES and the Singapore International Monetary Exchange Limited (SIMEX). In 2000, SES became a public-listed company. The broadened shareholder base better positions SES toseize the opportunities of the future, and to enjoy the flexibility available to any listed company in terms of capital structure, corporate finance, mergers and acquisitions .SES is the first fully electronic and floorless exchange in Asia and is the first demutualised, integrated securities and derivatives exchange in Asia Pacific. The SES supports Singaporean and global companies to rise capital, and for investors to transact and clear financial products. The SES owns and operates the only integrated securities exchange and derivatives exchange in Singapore and their related clearinghouses. Its exchanges have a presence and prominence that extends beyond the borders of Singapore.

Singapore Federation of Chambers of Commerce and IndustryThe Singapore Federation of Chambers of Commerce and Industry is a private sector body that acts as the national peak body representing the private sector in Singapore. It provides comments regarding proposed financial accounting regulations.The principal functions of this body is to promote and protect the interests of member organization by:

Acting as the national peak body representing the private sector in Singapore and serving as its spokesman to ASEAN private and public sector organizations.

Representing Singapore in the affairs of regional and international business organizations such as: ASEAN Chambers of Commerce and Industry, Confederation of Asia-Pacific Chambers of Commerce and Industry and International Chamber of Commerce

The Actors and the Process of Standard-settingSES plays a key role in preserving fair and transparent markets. Therefore, they are responsible for the listing rules for companies that raise capital and have their shares traded on the exchange, and for ensuring that conditions exist for orderly trading of listed securities. When it comes to financial reporting, the SES participates in regulating financial reporting practices and promulgates

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listing requirements for companies seeking to have their securities traded in the exchange issues its own Listing Manual and Disclosure Policy Guidelines containing requirements beyond thosespecified by the Companies Act. On the other hand, stock exchange administrators monitor whether listed companies comply with continuing reporting requirements after such companies have been qualified to list their securities in the exchange.

In Singapore, the government influences financial reporting and support of professional accounting initiatives. This influence and support occurs directly thorough legislation and indirectly, thorough audit requirements. The 1990 amendments to the Ninth Schedule of the Singapore Companies Act have directly incorporated most of the accounting standards and recommended accounting practices issued by ICPAS. Government agencies, such as the Registrar of Companies and Businesses and MAS, require companies to be audited by a licensed CPA.

As the securities agency, the MAS monitors whether companies prepare financial reports in accordance with securities market regulations. The MAS, based on its mandate under the Banking Act and the Securities Industry Act, has specified disclosure requirements for financial institutions and companies issuing their own securities to the public. The MAS also requires companies tobe audited by a licensed CPA The role of other private sector groups in accounting standard setting and preparation of financial statements and user groups, appears minimal . However, these groups influence standard setting activities in Singapore. These groups mainly influence the consultative process adopted by ICPAS. This process is designed, in part, to accommodate the concerns of the business community. For this reason, drafts are often sent to the national chamber of commerce and industry groups, and then this body gives comments. The other way by which a preparer of financial statements could influence standard setting outcomes indirectly is through explanation made by public accountants who, in view of their association with their clients, are aware of the likely impact of new accounting standards on companies.

Due ProcessICPAS is governed by a Council comprised of eight elected practicing members, eight elected non-practicing members (e.g. commerce, industry, education), and three members nominated by the Singapore Government and appointed by the Minister for Finance. The Council may appoint members of the Institute to be a co-opted member of the Council but no more than two cooptedmembers can hold office in the Council at any one time .The particular committee of the professional body takes charge of preparing proposed accounting standards.This committee generally is comprised of representatives from public practice, government, commerce and industry, and education, all of whom must be members of the professional accounting body.

The ICPAS’ Accounting Standards Committee examines the current IAS to determine its relevance to Singapore. If deemed suitable, the Committee distributes the IAS for comment to various government and private sector organizations, including the Stock Exchange of Singapore, the Association of Banks of Singapore, and the Chamber of Commerce. The Committee, using thecomments received as well as various legal and regulatory considerations, make modifications to IAS. The revised standard is sent to the Institute’s Council for approval. Once it is approved, it is promulgated as a Singapore accounting or auditing standard.

Singapore Accounting StandardsThe colonial history of Singapore dictates that its accounting system was also under British influence. After independence, and the emergence and development of IAS, Singapore also turned to the IASB as its major source of accounting standards. Singapore started adopting IASs as national standards in

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1977, two years after the first IAS rolled off the press. As an independent country severing its links with the UK, Singapore found the IASs a politically correct substitute for the informal influence of UK accounting standards.

All IAS standards are examined for their propriety of adoption in the Singapore context, and most had been adopted by the end of 1995. Some IAS standards have been amended to be more relevant in the Singapore context, but the amendments generally are not significant and the essence of each IAS statement has been retained. In Singapore, IASs are heavily adopted, but with minor modifications in some cases, as Statements of Accounting Standards. Although Singapore is a country that adopts IASs as national standards, SASs are not limited to IASs. There is no IAS on earnings per share yet, but there has been an SAS on this since 1983. More recently, with the introduction of the goods and services tax (GST) in Singapore, an SAS on accounting for GST was added. Both of these SASs are based on UK standards.

Accounting Standards are applicable to financial statements of reporting entities (not just companies) that are intended to give a true and fair view of state of affairs at the balance sheet date. However, the ICPAS is continuing its policy of harmonizing SAS with IAS. This effort is in line with the AFA’s policy encouraging the members to adopt IAS. Accounting standards in Singapore include all of the professional releases issued by the ICPAS. All members of ICPAS, whether in preparing or auditing financial statements, are required to observe these accounting standards. Some of the professional releases include SAS, Provisional Statements of Accounting Standards, and Statements of Recommended Accounting Practice.

Although the Accountants Act regulates the accountancy profession in Singapore, technical standards (accounting and auditing) are not directly regulated. There is no requirement in the Companies Act for companies' financial statements to be prepared in accordance with SASs. The Companies Act requirements pertain to the form and content of the balance sheet and theprofit and loss account deal with disclosures, but not presentation or measurement issues. The raison d'etre of SAS rests on the statutory requirement that the accounts give a `true and fair view'. The role of SASs in Singapore is the same as that of accounting standards in the UK before the Dearing reforms introduced the Accounting Standards Board and before the UK Companies Actof 1985.

The ICPAS is continuing its policy of harmonizing SAS with IAS. The ICPAS has announced their plan to simultaneously issue exposure drafts and standards with the IASB and to make the standards effective in the quarter following adoption. The ICPAS has issued five new accounting standards, which became effective on the 1st of April, 2001.

In late 2000, the Disclosure and Accounting Standards Committee (DASC) of the ICPAS was formed to propose changes to the Singapore Companies Act. This committee announced its recommendation that Singapore adopt the IAS and US standards as the only acceptable accounting standards in Singapore. If this were done, Singapore accounting standards would be eliminated. The tablebelow shows the SAS number that comply with IAS:

SAS Title and related IAS Number Effective for periods beginning on or after

1 Presentation of Financial Statements (IAS 1) January 1, 20006 Earnings per share (IAS 33) December 31, 19998 Net profit or loss for the period, fundamental errors

and changes in accounting policy (IAS 8)October 1, 2000

10 Events occurring after the balance sheet date (IAS April 1, 2001

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10)12 Income Taxes (IAS 12) January 1, 200015 Leases (IAS 17) April 1, 200117 Employee Benefits October 1, 200022 Business Combinations (IAS 22) January 1, 200023 Segment Reporting (IAS 14) October 1, 200031 Provisions, contingent liabilities and contingent

asset (IAS 37)October 1, 2000

32 Financial Instruments: Disclosure and Presentation (IAS 32)

October 1 , 2000

33 Financial Instruments: Recognition and Measurement (IAS 39)

April 1, 2001

34 Intangible Assets (IAS 38) October 1, 200035 Discontinuing Operations (IAS 35) October 1, 200036 Impairment of assets (IAS 36 October 1, 200037 Information reflecting the effect of changing prices

(IAS 15)April 1, 2001

38 Financial Reporting in hyperinflationary economies (IAS 29)

April 1, 2001

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Q5. As multinational companies continue to expand globally managing the risk related to fluctuating currency exchange rates has become a strategic challenge usually resulting in use of financial derivatives. Obtain the annual report of a company and describe the different types of derivative financial instruments the company utilizes.

Arcelor Mittal

Foreign currency sensitivity

The following table details the Company’s sensitivity as it relates to derivative financial instruments to a 10% strengthening and a 10% weakening in the U.S. dollar against the other currencies to which the Company is exposed. The sensitivity analysis does not include non-derivative foreign currency-denominated monetary items. A positive number indicates an increase in profit or loss and other equity where a negative number indicates a decrease in profit or loss and other equity.

Foreign exchange and Interest rate risk

Interest rate risk

The Company enters into derivative financial instruments to manage its exposure to fluctuations in interest rates, exchange rates and the price of raw materials, energy and emission rights allowances arising from operating, financing and investment activities.

The Company utilizes certain instruments to manage interest rate risks. Interest rate instruments allow the Company to borrow long-term at fixed or variable rates, and to swap the rate of this debt either at inception or during the lifetime of the loan. The Company and its counter-party exchange, at predefined intervals, the difference between the agreed fixed rate and the variable rate, calculated on the basis of the notional amount of the swap. Similarly, swaps may be used for the exchange of variable rates against other variable rates.

Interest rate derivatives used by the Company to manage changes in the value of fixed rate loans qualify as fair value hedges.

Exchange rate risk

The Company is exposed to changes in values arising from foreign exchange rate fluctuations generated by its operating activities. Because of a substantial portion of ArcelorMittal’s assets, liabilities, sales and earnings are denominated in currencies other than the U.S. dollar (its reporting currency), ArcelorMittal has an exposure to fluctuations in the values of these currencies relative to the U.S. dollar. These currency fluctuations, especially the fluctuation of the value of the U.S. dollar relative to the euro, the Canadian dollar, Brazilian real and South African rand, as well as fluctuations in the other countries currencies in which ArcelorMittal has significant operations and/or sales, could have a material impact on its results of operations.

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ArcelorMittal faces transaction risk, where its businesses generate sales in one currency but incur costs relating to that revenue in a different currency. For example, arcelorMittal’s non-U.S. subsidiaries may purchase raw materials, including iron ore and coking coal, in U.S. dollars, but may sell finished steel products in other currencies. Consequently, an appreciation of the U.S. dollar will increase the cost of raw materials; thereby impacting negatively on the Company’s operating margins.

Following its Treasury and Financial Risk Management Policy, the Company hedges its net exposure to exchange rates through forwards, options and swaps. ArcelorMittal faces translation risk, which arises when ArcelorMittal translates the statement of operations of its subsidiaries, its corporate net debt and other items denominated in currencies other than the U.S. dollars, for inclusion in the ArcelorMittal Consolidated Financial Statements.

The Company also uses the derivative instruments, described above, at the corporate level to hedge debt recorded in foreign currency other than the functional currency or the balance sheet risk incurred on certain monetary assets denominated in a foreign currency other than the functional currency.

Derivative financial instruments

The Company enters into derivativefinancial instruments principally to manage its exposure to fluctuation in interest rates, exchange rates, prices of raw materials, energy and emission rights allowances. Derivative financial instruments are classified as current assets or liabilities based on their maturity dates and are accounted for at trade date. Embedded derivatives are separated from the host contract and accounted for separately if required by IAS 39, “Financial Instruments: Recognition and Measurement”. The Company measures all derivative financial instruments based on fair values derived from market prices of the instruments or from option pricing models, as appropriate. Gains or losses arising from changes in fair value of derivatives are recognized in the statement of operations, except for derivatives that are highly effective and qualify for cash flow or net investment hedge accounting.

Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a fair value hedge, along with the gain or loss on the hedged asset, liability, or unrecognized firm commitment of the hedged item that is attributable to the hedged risk, are recorded in the statement of operations.

Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash flow hedge are recorded in equity. Amounts deferred in equity are recorded in the statement of operations in the periods when the hedged item is recognized in the statement of operations and within the same line item.

The Company formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When a hedging instrument is sold, terminated, expires or is exercised the cumulated unrealized gain or loss on the hedging instrument is maintained in equity until the forecasted transaction occurs. If the hedged transaction is no longer probable, the

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cumulative unrealized gain or loss, which had been recognized in equity, is reported immediately in the statement of operations.

Foreign currency differences arising on the retranslation of a financial liability designated as a hedge of a net investment in a foreign operation are recognized directly as a separate component of equity, to the extent that the hedge is effective. To the extent that the hedge is ineffective, such differences are recognized in the statement of operations.

Available for sale financial assets classified as Level 1 refer to listed securities quoted in active markets. The total fair value is either the price of the most recent trade at the time of the market close or the official close price as defined by the exchange on which the asset is most actively traded on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs.

Derivative financial assets and liabilities classified as Level 2 refer to instruments to hedge fluctuations in interest rates, foreign exchange rates, raw materials (base metal), freight, energy and emission rights. The total fair value is based on the price a dealer would pay or receive for the security or similar securities, adjusted for any terms specific to that asset or liability. Market inputs are obtained from well established and recognized vendors of market data and the fair value is calculated using standard industry models based on significant observable market inputs such as foreign exchange rates, commodity prices, swap rates and interest rates.

Derivative financial liabilities classified as level 3 refer to the conversion option in the €1.25 billion convertible bonds (see note 14). The fair value is derived through the use of a binominal model.

The following table summarizes the reconciliation of the fair value of the conversion option classified as Level 3 with respect to the €1.25 billion convertible bonds and the 800 convertible senior notes for the year ended December 31, 2009 respectively until the waiver of the cash settlement option:

Portfolio of Derivatives

The Company manages the counter-party risk associated with its instruments by centralizing its commitments and by applying procedures which specify, for each type of transaction and underlying, risk limits and/or the characteristics of the counter-party. The Company does not generally grant to or require from its counter-parties guarantees over the risks incurred. Allowing for exceptions, the Company’s counter-parties are part of its financial partners and the related market transactions are governed by framework agreements (mainly of the International Swaps and Derivatives Association agreements which allow netting in case of counter-party default).

The portfolio associated with derivative financial instruments as of December 31, 2009 is as follows:

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Q6. The revolution in information technology has seen the convergence of a large number of high-tech and internet companies. Choose a high-tech company from each of three different countries and compare their accounting policy for research and development costs.

Company Name: Intel

Country: USA

Research and Development Costs

They amortize acquisition-related in-process research and development over the

estimated useful life once the research and development efforts are completed. In the

quarter following the period in which identified intangible assets become fully amortized,

the fully amortized balances are removed from the gross asset and accumulated

amortization amounts. In addition, acquired in-process research and development is

capitalized as an intangible asset.

Company Name: Telenor

Country: Norway

Research and Development Costs

Development expenditures that meet the criteria for recognition, i.e. that it is probable that the

expected future economic benefits that are attributable to the asset will flow to the entity and the

cost can be measured reliably, are capitalised. The assets are amortised over their expected useful

life once the asset is available for use. Costs incurred during the research stage of a project, as well

as maintenance and training costs are expensed as incurred.

Company Name: SAP AG

Country: Germany

Research and Development Costs

Research and development includes the costs incurred by activities related to the

development of software solutions (new products, updates and enhancements) including

resource and hardware costs for the development systems. Development activities

involve the application of research

findings or other knowledge to a plan or design of new or substantially improved

software products before the start of commercial use. Development expenditures are

capitalized only if all of the following criteria are met: The development cost can be

measured reliably. The product is technically and commercially feasible. Future economic

benefits are probable.

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Q7. Choose a company that issues both a domestic financial statement using its own GAAP and one in which it uses a foreign GAAP or IAS/IFRS. Are there significant differences in the bottom line, policies and practices, formats etc.? Do the two sets of financial statements lead you to different conclusions about the operating performance of the company? Support your answers.

Indian GAAP US GAAPICICI BankOperating Profit Rs. 8925 crores Rs. 10410 crores Net profit Rs. 3758 crores Rs. 4843.41 croresEPS Rs. 36.14 Rs. 41.93Financial StatementsComponents 2 years consolidated Balance

Sheet, Income Statement, Cash Flow statement, changes in equity, accounting policies and notes

Single entity parent company 2 years Balance Sheet, Income Statement, Cash Flow statement, changes in equity, accounting policies and notes

Public companies are additionally required to prepare consolidated financial statements along with standalone financial statements

Balance Sheet Entities may provide either a classified or non-classified balance sheet. Items on the face of the balance sheet are generally presented in decreasing order of liquidity

SEC registrants should follow SEC regulations

Accounting standards do not prescribe a particular format; certain items must be presented of the face of the balance Sheet

Formats are prescribed by the Companies Act and other industry regulations like banking, insurance etc

Income Statement Present as either a single step or a multi step formatExpenditures are presented by functionSEC registrants should follow SEC regulations

Does not prescribe a standard format, but certain income and expenditure items are disclosed in accordance with the accounting standards and the Companies ActIndustry specific formats are prescribed by the Industry regulations

Exceptional (Significant items)

Requires separate disclosure or items that are of such size, incidence or nature that their separate disclosure is necessary to explain the performance of the entity

Similar to US GAAP

Cash flow statement- format and method

Standards headings, use of both direct and indirect method

Similar to US GAAP

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permittedChanges in accounting policy

Comparatives and prior year are restated against opening retained earnings, unless specifically exempted

Restatement is not required. The effect of change is included in the current year’s income statement. This impact of changes is disclosed.

Consolidated Financial StatementsSubsidiary A subsidiary held-for-sale even

at the time of acquisition, will be consolidated until sold

If the entity is acquired and held for resale or if it operates in severe long-term restrictions which impair its ability to transfer funds to the parent

Associates In consolidated financials, equity method is used. Share of post-tax results is shown. In standalone financials, at cost or equity method is used

In consolidated financials, equity method is used. Share of post-tax results is shown. In standalone financials, shown at cost less impairment

Accounting policies of associates

No adjustment to accounting policies is required if the associate follows an acceptable alternative US GAAP treatment

Similar to US GAAP

Joint ventures Equity method required except in specific circumstancesIn standalone financials, at cost or equity method is used

In consolidated financials: proportional consolidation is used. In standalone financials: at cost less impairment

Revenue & Expense RecognitionRevenue Recognition Based on several criteria, which

require the recognition of revenue when risks and rewards and controls have been transferred and the revenue can be measured reliablyThere is extensive detailed guidance for specific types of transactions that may lead to differences in practice

Similar to US GAAP

Depreciation Allocated on a systematic basis to each accounting period over the useful life of the asset

Similar to US GAAP, where useful life is shorter as envisaged under the Companies’ Act , the depreciation is computed by applying a higher rate

Interest Expense Recognised on an accrual basis using the effective interest method

Recognised on an accrual basis, practice varies with respect to recognition of discounts and premiums

AssetsAcquired Intangible Assets

Capitalised if recognition criteria are met, amortised over useful

Similar to US GAAP

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lifeRevaluations are not permitted

Internally generated intangible assets

Both R&D costs expensed as incurred

Research costs expensed as incurredDevelopment costs capitalised and amortised only when specific criteria are met

Property, Plant and Equipment

Historical Cost is used, revaluations are not permitted

Historical cost is used, revaluations are permitted

Inventories Carried at lower of cost or net realisable valueLIFO is permittedReversal of write downs is prohibited

Carried at lower of cost or net realizable valueLIFO prohibited

Financial Assets Held-to-maturity loans or receivables are carried at amortized cost or fair valueGains/ losses on fair value through profit or loss classification is recognised on income statementGains and losses on available-for-sale instruments are recognised in equity

Long term investments, loans and receivables are carried at cost less impairmentCurrent assets carried at lower of cost and fair valueAny reduction in the carrying amount or the reversal of such reduction is credited to income statement

LiabilitiesDeferred income taxes

Full provision method is used driven by balance sheet temporary differencesDeferred tax assets are recognised if recovery is probable

Full provision method is used driven by timing differences Deferred tax asset is recognised if realisation is virtually certain or reasonably certain as applicable for entities with and without tax carry forward losses respectively

EquityPurchase of own shares

Shown as deduction from Equity Purchase is permitted in limited circumstances subject to the provisions under the Companies ActOn purchase such shares are required to be cancelled i.e, they cannot be kept at treasury stock

Dividends Presented as a deduction in the statement of changes in the shareholder’s equity in the period when authorised by shareholders. Dividends are accounted in the year when declared

Presented as an appropriation to the income statement. Dividends are accounted in the year when proposed

Other accounting concerns

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Functional currency “Currency of primary economic environment in which entity operates”If indicators are mixed, judgement is used by giving priority to the currency that mainly influences sales prices and currency that mainly influences direct costs of providing the goods and services before considering other factors

Functional currency is not defined and its determination is also not requiredIt is assumed that an entity normally uses the currency of the country in which it is domiciled in recording its transactions

Q8. The risks of investing in Emerging Capital Markets (ECM’s) are not only associated with structural, political and economic problems, but also with international problems stemming from the difficulty of obtaining adequate, reliable and timely information useful for evaluating investment opportunities in these markets. Research two/three ECM’s and determine the timeliness and availability of financial reporting for each. Do publicly listed companies release quarterly or semi-annual financial statements? Is actual practice different from required practice? Briefly summarize your findings for each.

Transparency is a very important component of financial reporting. Companies must disclose anything that might influence the investment decision of an informed investor. One aspect of transparency is timeliness. Timeliness of financial reporting is one of the attributes of good corporate governance identified by the OECD and World Bank. Shareholders and other stakeholders need information while it is still fresh and the more time that passes between year-end and disclosure, the more stale the information becomes and the less value it has. A research by McGee in 2007 reveals that companies in transition economies issue their financial statements far later than do companies in the more developed market economies.

In a brief research of few companies in the emerging economies, I fund that most companies prepare their semi annual and quarterly financial statements, though with a lagged effect. Further, these statememnts are prepared to meet the informational needs of investors and other stakeholders rather than to fulfill any regulatory obligation.

Emerging Capital Markets Quarterly Financial Statements Semi- annual Financial Statements

Brazil Yes YesIndia Yes YesChina Yes (scarce) YesSouth Africa No No

India

Companies prepare reports on an annual, quarterly and semi- annual basis. These reports are easily available for most publically traded companies.

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Brazil

Not all Brazillian companies prepare quarterly and semi- annual reports. Most publically traded Brazilian companies release an annual report and a sustainability development report.

China

Chinese companies take significantly longer to issue their financial statements than do non-Chinese companies. Thus, Chinese financial statements are less timely than the financial statements of non-Chinese companies in developed market economies. Since timeliness is an attribute of good corporate governance (OECD, 1998), it is also reasonable to conclude that the corporate governance in Chinese companies is not yet on the same level with that of companies in OECD countries, at least not as far as the timeliness of financial reporting is concerned.

It is likely that the situation will improve. Chinese companies will likely take less time to issue their financial statements and annual reports in the years to come. There are several reasons for this prediction. For one, the Chinese government is aware of corporate governance principles as advocated by the OECD, World Bank, IMF and others. Secondly, Chinese companies are also aware of corporate governance principles, although they are not always easy to adopt and implement. But this situation will change over time.

Another influential factor is the communication that takes place between Chinese company management and foreign investors. If foreign investors put pressure on Chinese companies to issue their financial statements in a timely manner, there is a tendency for them to do so. The Big-4 audit firms will also help to make the goal of timely financial reporting a reality. Thus, it is probably only a matter of time before Chinese companies will issue their financial reports in as timely a manner as non-Chinese companies. However, that point has not yet been reached.

South Africa

In my research, I did not find any South African firm which undertakes quarterly and semi annual reporting.

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Q9. One factor that can affect investor confidence in financial reporting is the timeliness of annual reports. Choose an ECM and obtain three local annual reports all with the same fiscal year end. Critically examine the auditor’s reports of three companies. When was the audit report issued (i.e. how long after the year-end date)? Is this period shorter or longer compared to companies listed in your home country? Explain.

ChinaCompany Auditors Opinion Fiscal year

endDate of issue of auditor’s report

Time lag

China Railway Construction Corporation Limited

Ernst & Young

“In our opinion, the financial statements give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2009 and of the Group’s profit and cash flows for the year then ended in accordance with IFRSs and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.”

31st December

26 April 2010

4 months

China Petroleum & Chemical Corporation

KPMG Huazhen

“In our opinion, the consolidated financial statements give a true and fair view of the state of the affairs of the Company and of the group as at 31 December 2009 and of the group’s profit and cash flows for the year then ended in accordance with International Financial Reporting Standards and Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the Hong Kong Companies Ordinance.”

31st December

18th March 2010

2.5 months

Novatek Microelectronics corp

Ernst & Young

“In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2009 and of the Group’s profit and cash flows for the year then ended in accordance with International Financial Reporting Standards as issued by the International Accounting

31st December

26th January

1 months

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Standards Board and the disclosure requirements of the Hong KongCompanies Ordinance.”

IndiaTATA motors DELOITTE

HASKINS & SELLS

“in our opinion and to the best of our information and according to the explanations given to us, they said accounts give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:(i) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2010;(ii) in the case of the Profit and Loss Account, of the profit of the Company for the year ended on that date;(iii) in the case of the Cash Flow Statement, of the cash flows of the Company for the year ended on that date.”

31st March 27th May 2010

2 months

RelianceIndustries Limited

DELOITTE HASKINS & SELLS

“In our opinion and to the best of our information and according to the explanations given to us, the said accounts read together with the Significant Accounting Policies and notes thereon give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:(i) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2010;(ii) in the case of the Profit and Loss Account, of the profit for the year ended on that date;

31st March April 23rd 2010

1 month

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(iii) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.”

According to the annual reports of Indian companies (Tata Motors, Reliance Industries), the average time lag of taken by companies to report their financial statements is 1.5 months. This is the average time lag between the date of fiscal year ending and the date of issue of auditor’s report.

Compared to the Indian perspective, companies of China report their financial statements in a less timely manner.

Q10. As companies continue to grow globally, the importance of global risk assessment and management has motivated MNC’s to adopt a broad range of risk management tools and strategies. Obtain two MNC annual reports and describe each company’s foreign exchange risk management programs, policies and hedging activities. Based on the information provided, do the programs in place appear adequate? Support your answer.

Arcelor Mittal

Foreign currency sensitivity

The following table details the Company’s sensitivity as it relates to derivative financial instruments to a 10% strengthening and a 10% weakening in the U.S. dollar against the other currencies to which the Company is exposed. The sensitivity analysis does not include non-derivative foreign currency-denominated monetary items. A positive number indicates an increase in profit or loss and other equity where a negative number indicates a decrease in profit or loss and other equity.

Foreign exchange and Interest rate risk

Interest rate risk

The Company enters into derivative financial instruments to manage its exposure to fluctuations in interest rates, exchange rates and the price of raw materials, energy and emission rights allowances arising from operating, financing and investment activities.

The Company utilizes certain instruments to manage interest rate risks. Interest rate instruments allow the Company to borrow long-term at fixed or variable rates, and to swap the rate of this debt either at inception or during the lifetime of the loan. The Company and its counter-party exchange, at predefined intervals, the difference between the agreed fixed rate and the variable rate,

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calculated on the basis of the notional amount of the swap. Similarly, swaps may be used for the exchange of variable rates against other variable rates.

Interest rate derivatives used by the Company to manage changes in the value of fixed rate loans qualify as fair value hedges.

Exchange rate risk

The Company is exposed to changes in values arising from foreign exchange rate fluctuations generated by its operating activities. Because of a substantial portion of ArcelorMittal’s assets, liabilities, sales and earnings are denominated in currencies other than the U.S. dollar (its reporting currency), ArcelorMittal has an exposure to fluctuations in the values of these currencies relative to the U.S. dollar. These currency fluctuations, especially the fluctuation of the value of the U.S. dollar relative to the euro, the Canadian dollar, Brazilian real and South African rand, as well as fluctuations in the other countries currencies in which ArcelorMittal has significant operations and/or sales, could have a material impact on its results of operations.

ArcelorMittal faces transaction risk, where its businesses generate sales in one currency but incur costs relating to that revenue in a different currency. For example, arcelorMittal’s non-U.S. subsidiaries may purchase raw materials, including iron ore and coking coal, in U.S. dollars, but may sell finished steel products in other currencies. Consequently, an appreciation of the U.S. dollar will increase the cost of raw materials; thereby impacting negatively on the Company’s operating margins.

Following its Treasury and Financial Risk Management Policy, the Company hedges its net exposure to exchange rates through forwards, options and swaps. ArcelorMittal faces translation risk, which arises when ArcelorMittal translates the statement of operations of its subsidiaries, its corporate net debt and other items denominated in currencies other than the U.S. dollars, for inclusion in the ArcelorMittal Consolidated Financial Statements.

The Company also uses the derivative instruments, described above, at the corporate level to hedge debt recorded in foreign currency other than the functional currency or the balance sheet risk incurred on certain monetary assets denominated in a foreign currency other than the functional currency.

Derivative financial instruments

The Company enters into derivativefinancial instruments principally to manage its exposure to fluctuation in interest rates, exchange rates, prices of raw materials, energy and emission rights allowances. Derivative financial instruments are classified as current assets or liabilities based on their maturity dates and are accounted for at trade date. Embedded derivatives are separated from the host contract and accounted for separately if required by IAS 39, “Financial Instruments: Recognition and Measurement”. The Company measures all derivative financial instruments based on fair values derived from market prices of the instruments or from option pricing models, as appropriate. Gains or losses arising from changes in fair value of derivatives are recognized in the statement of operations, except for derivatives that are highly effective and qualify for cash flow or net investment hedge accounting.

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Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a fair value hedge, along with the gain or loss on the hedged asset, liability, or unrecognized firm commitment of the hedged item that is attributable to the hedged risk, are recorded in the statement of operations.

Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash flow hedge are recorded in equity. Amounts deferred in equity are recorded in the statement of operations in the periods when the hedged item is recognized in the statement of operations and within the same line item.

The Company formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When a hedging instrument is sold, terminated, expires or is exercised the cumulated unrealized gain or loss on the hedging instrument is maintained in equity until the forecasted transaction occurs. If the hedged transaction is no longer probable, the cumulative unrealized gain or loss, which had been recognized in equity, is reported immediately in the statement of operations.

Foreign currency differences arising on the retranslation of a financial liability designated as a hedge of a net investment in a foreign operation are recognized directly as a separate component of equity, to the extent that the hedge is effective. To the extent that the hedge is ineffective, such differences are recognized in the statement of operations.

Available for sale financial assets classified as Level 1 refer to listed securities quoted in active markets. The total fair value is either the price of the most recent trade at the time of the market close or the official close price as defined by the exchange on which the asset is most actively traded on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs.

Derivative financial assets and liabilities classified as Level 2 refer to instruments to hedge fluctuations in interest rates, foreign exchange rates, raw materials (base metal), freight, energy and emission rights. The total fair value is based on the price a dealer would pay or receive for the security or similar securities, adjusted for any terms specific to that asset or liability. Market inputs are obtained from well established and recognized vendors of market data and the fair value is calculated using standard industry models based on significant observable market inputs such as foreign exchange rates, commodity prices, swap rates and interest rates.

Derivative financial liabilities classified as level 3 refer to the conversion option in the €1.25 billion convertible bonds (see note 14). The fair value is derived through the use of a binominal model.

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The following table summarizes the reconciliation of the fair value of the conversion option classified as Level 3 with respect to the €1.25 billion convertible bonds and the 800 convertible senior notes for the year ended December 31, 2009 respectively until the waiver of the cash settlement option:

Portfolio of Derivatives

The Company manages the counter-party risk associated with its instruments by centralizing its commitments and by applying procedures which specify, for each type of transaction and underlying, risk limits and/or the characteristics of the counter-party. The Company does not generally grant to or require from its counter-parties guarantees over the risks incurred. Allowing for exceptions, the Company’s counter-parties are part of its financial partners and the related market transactions are governed by framework agreements (mainly of the International Swaps and Derivatives Association agreements which allow netting in case of counter-party default).

The portfolio associated with derivative financial instruments as of December 31, 2009 is as follows:

CISCO

Cisco’s financial position is exposed to a variety of risks including interest rate risk, equity price risk, and foreign currency exchange risk. Cisco conducts business globally in numerous currencies. The direct effect of foreign currency fluctuations on sales has not been material because sales are primarily denominated in U.S. dollars. However, if the U.S. dollar strengthens relative to other currencies, such strengthening could have an indirect effect on our sales to the extent it raises the cost of our products to non-U.S. customers and thereby reduces demand.A weaker U.S. dollar could have the opposite effect. However, the precise indirect effect of currency fluctuations is difficult to measure or predict because our sales are influenced by many factors in addition to the impact of such currency fluctuations.

Foreign Currency Exchange RiskThe foreign exchange forward and option contracts are summarized as follows (in millions):

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Foreign currency fluctuations, net of hedging, increased our operating expenses, categorized as research and development, sales and marketing, and general and administrative, by approximately 0.2% in fiscal 2010 compared with fiscal 2009 and decreased the operating expenses by approximately 1.8% in fiscal 2009 compared with fiscal 2008. To reduce variability in operating expenses and service cost of sales caused by non-U.S.-dollar denominated operating expenses and costs, the company hedges certain foreign currency forecasted transactions with currency options and forward contracts. These hedging programs are not designed to provide foreign currency protection over long time horizons. In designing a specific hedging approach, several factors including offsetting exposures, significance of exposures, costs associated with entering into a particular hedge instrument, and potential effectiveness of the hedge are considered. The gains and losses on foreign exchange contracts mitigate the effect of currency movements on the operating expenses and service cost of sales.The firm enters into foreign exchange forward and option contracts to reduce the short-term effects of foreign currency fluctuations on receivables, investments, and payables, denominated in currencies other than the functional currencies of the entities. The market risks associated with these foreign currency receivables, investments, and payables relate primarily to variances from forecasted foreign currency transactions and balances. The forward and option contracts generally have the following maturities:

DERIVATIVE INSTRUMENTs

The Company recognizes derivative instruments as either assets or liabilities and measures those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. For a derivative instrument designated as a fair value hedge, the gain or loss is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item attributed to the risk being hedged. For a derivative instrument designated as a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of AOCI and subsequently reclassified into earnings when the hedged exposure affects earnings. The ineffective portion of the gain or loss is reported in earnings immediately. For derivative instruments that are not designated as accounting hedges, changes in fair value are recognized in earnings in the period of change. The Company records derivative instruments in the statements of cash flows to operating, investing or financing activities consistent with the cash flows of the hedged item.

(a) Summary of Derivative Instruments

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The Company uses derivative instruments primarily to manage exposures to foreign currency exchange rate, interest rate, and equity price risks. The Company’s primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates, interest rates, and equity prices. The Company’s derivatives expose it to credit risk to the extent that the counterparties may be unable to meet the terms of the agreement. The Company does, however, seek to mitigate such risks by limiting its counterparties to major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored. Management does not expect material losses as a result of defaults by counterparties.The fair values of the Company’s derivative instruments and the line items on the Consolidated Balance Sheets to which they were recorded are summarized as follows (in millions):

During the years ended July 31, 2010 and July 25, 2009, the amounts recognized in earnings on derivative instruments designated as cash flow hedges related to the ineffective portion were not material, and the Company did not exclude any component of the changes in fair value of the derivative instruments from the assessment of hedge effectiveness. As of July 31, 2010, the Company estimates that approximately $40 million of net derivative gains related to its cash flow hedges included in AOCI will be reclassified into earnings within the next 12 months. The effect on the Consolidated Statements of Operations of derivative instruments designated as fair value hedges is summarized as follows (in millions):

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The effect on the Consolidated Statements of Operations of derivative instruments not designated as hedges is summarized as follows (in millions):

Foreign Currency Exchange RiskThe Company conducts business globally in numerous currencies. Therefore, it is exposed to adverse movements in foreign currency exchange rates. To limit the exposure related to foreign currency changes, the Company enters into foreign currency contracts. The Company hedges foreign currency forecasted transactions related to certain operating expenses and service cost of sales with currency options and forward contracts. These currency option and forward contracts, designated as cash flow hedges, generally have maturities of less than 18 months. The Company assesses effectiveness based on changes in total fair value of the derivatives. The effective portion of the derivative instrument’s gain or loss is initially reported as a component of AOCI and subsequently reclassified into earnings when the hedged exposure affects earnings. The ineffective portion, if any, of the gain or loss is reported in earnings immediately. The Company did not discontinue any hedges during any of the periods presented because it was probable that the original forecasted transaction would not occur.The Company enters into foreign exchange forward and option contracts to reduce the short-term effects of foreign currency fluctuations on assets and liabilities such as foreign currency receivables, including long-term customer financings, investments, and payables. These derivatives are not designated as hedging instruments. Gains and losses on the contracts are included in other income (loss), net, and substantially offset foreign exchange gains and losses from the remeasurement of intercompany balances or other current assets, investments, or liabilities denominated in currencies other than the functional currency of the reporting entity.The Company hedges certain net investments in its foreign subsidiaries with forward contracts, which generally have maturities of up to six months. The Company recognized a loss of $2 million in OCI for the effective portion of its net investment hedges for the year ended July 31, 2010. The Company’s net investment hedges are not included in the preceding tables.

The notional amounts of the Company’s foreign currency derivatives are summarized as follows (in millions):

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