normally monitors,
such as some of the various economic performanee indicators by country . The con seque nces of disclosure should also be con sidered. Con seque nces include the effects on public relations and government scrutiny. The company will face adverse consequences i f it has a “bad\story to tell in any area. As discussed in the chapter, corporate social resp on sibility is con troversial. In terest ing classroom discussi on s can revolve around whether the public has a “right to knoW'
items in the GRI guideli nes.
about the
9. a. and b. The . SEC requires recon ciliati on disclosures so that . GAAP-based financial
information is available to financial statement users, even if the primary finan cial stateme nts are prepared using ano ther set of GAAP. Recon ciliati on disclosures permit the finan cial stateme nt user to compare finan cial in formati on prese nted in finan cial stateme nts of domestic and foreig n registra nts. A U.S. i nvestor might use in formati on
presented in a reconciliation disclosure, for example, to compare key financial ratios of Novartis with those of comparable U.S. companies, all on a . GAAP basis.
c. The three acco unting pri nciples differe nces hav ing the largest effect on in come are
those related to:
2005 Intan gible assets Available-for-sale securities Pensions and other post- employme nt ben efits
2004 Intan gible assets Curre ncy tran slati on 2003 Intan gible assets Available-for-sale securities Share-based compe nsati on Available-for-sale securities The three accounting principles differences having the largest effect on equity are: 2005 2004 Intan gible assets Intan gible assets Pensions and other post-employme nt Pensions and other post-employme nt ben efits ben efits Property, pla nt, and equipme nt Property, pla nt, and equipme nt (Note that the deferred tax differenee in Exhibit 5-6 is primarily due to the tax effects of the other principles differences. There are minor differences in the way
IFRS and . GAAP account for deferred taxes. For Novartis, the effect of these differences is small.) 10.
a. According to Volvo 's disclosure, “The independence requirements mainly
mean that only one person from the company 's management may be a member
of the Board, that a majority of the board shall be independent of the company and the company management and that at least two of the members that are independent from the company and the company's management shall also be independent of the company's
major shareholder. In addition, the Code demands that a majority of the members in the Audit Committee shall be independent of the company and that at least one member shall be independent of the company
's major shareholders. ”
b. Only one person (Leif Johansson) from the company's management is a member of the
board. Five of the 8 (a majority) board members are independent of “the company and company management.” Of these 5, 3 are also independent of the major shareholders. The audit committee consists of 3 individuals, of which 2 are independent members. All 3 are independent of the major shareholders. The composition o board of directors meets the independence requirements.
f Volvo 's
c. One member is not independent because he is the CEO. Two other members are not
independent because they have been on the board longer than 12 years. Two other members are not independent because they represent a major shareholder. However,
these latter two are still
the company and company management.”
“independent of
The board has overall
responsibility for monitoring the activities of the company and ensuring that shareholders ' interes ts are protected. It is important that the board be independent of management, otherwise management will be monitoring its own work. Long-time board members may become entrenched and lose their objectivity. Major shareholders are a related party and are in a position to use their board membership for preferential “sweetheart ” deals. In all situations, objectivity may be jeopardized and proper monitoring of management and the shareholders ' interests compromised. Thus, there are good reasons for considering these criteria in deciding whether board members are independent.
d. The audit committee has 3 members. Two of the members (a majority) are independent.
The chairman may be viewed as not independent because he has been a long-time member of the board. All 3 members of the audit committee are independent of the majority shareholders.
11.
a. The six sections of the OECD Principles of Corporate Governance are as follows:
1. En suri ng the basis for an effective corporate gover nance framework: __________
The corporate governance framework should promote transparent and efficient markets, be consistent with the rule of law and clearly articulate the divisi on of resp on sibilities among differe nt supervisory, regulatory and en forceme nt authorities. 2. The rights of shareholders and key own ership fun cti ons: corporate governance framework should protect and facilitate the
exercise of shareholders ' rights.
treatment of shareholders: The corporate3. The equitable governance
framework should en sure the equitable treatme nt of all shareholders, in cludi ng min ority and foreig n shareholders. All shareholders should have the opport un ity to obtai n effective redress for violati ons of their rights. 4.
The role of stakeholders in corporate governance: The corporate gover nance framework should recog nize the rights of stakeholders established by law or through mutual agreements and encourage
active cooperation between corporations and stakeholders in creating wealth, jobs, and the susta in ability of finan cially sound en terprises.
The
5. Disclosure and transparency: The corporate governance framework
should ensure that timely and accurate disclosure is made on all material matters
regarding the corporation, including the financial situati on, performa nee, own ership, and gover nance of the compa ny. 6. The resp on sibilities
of the board: The corporate
gover nance
framework should ensure the strategic guidanee of the company, the effective
monitoring of management by the board, and the board' s
acco un tability to the compa ny and the shareholders.
b. These pr in ciples con tribute to corporate gover nance by deli neati ng the resp on sibilities,
acco un tability, and relati on ships among shareholders, board members, managers, and stakeholders designed to meet corporate
objectives. They improve the operations and control activities.
12. The placeme nt of the 34 coun tries can be the subject of some discussi on with
students, and there are many ways to be “surprised. ” For example, some stude nts might be surprised to see the U.S. at the top of the list give n the
recent accounting scandals there. However, based on Chapters 3 and 4 (and extrapolating from them), we suggest that the high placement of Brazil (#4) and Mexico (#6) are a surprise. Both are emerg ing econo mies and, in gen eral,
report ing and disclosure are not as adva need in emergi ng econo mies as they are
of the company ' s
in developed economies. The placement of the U.K. (# 11) and the Netherlands
(#16) is also a surprise. Chapter 3 argues that the quality of financial reporting is particularly good in both countries. Indeed they are among the
world leaders. That they place below Brazil and Mexico is also a surprise. Perhaps the low ranking of Japan (#29) is also a surprise. From Chapter 4, one would not expect Japan to be (a) near the bottom, (b) so far below Germany, and (c) below so many emerging economy countries.
Case 5-1 Novartis
1. The three IFRS/ accounting principles differences that cause the largest differences in Novartis ' s
2005 net income relate to intangible assets (note ,
available-for-sale securities (note , and pensions and other post-employment benefits (note . 2.
a., b., and c.
The largest adjustment between IFRS and . GAAP net income relates to accounting for intangibles. The adjustment reduces IFRS income by 1,238 in 2005 and 590 in 2004. Note shows that the 2005 amount is composed of three main items: (1) A 118 hedging loss on business combinations.
The company has hedged the purchase price of certain acquisitions. Under IFRS, hedging gains and losses are included in the purchase price, but under . GAAP hedging of business combination purchases is not allowed. (2) 680 in additional amortization and impairments of product rights and trademarks. This amount arises because a 1996 business combination was treated as a uniting of interests (pooling) under IFRS but would be treated as a
purchase under . GAAP. As a purchase, these product rights and trademarks would have been revalued to their then current market values. (3) 412 related to acquired in-process R&D (IPR&D). Under IFRS, IPR&D is recorded as an intangible asset, but under . GAAP it is written off immediately at acquisition.
The second largest adjustment between IFRS and . GAAP net income relates to available-for-sale securities. The adjustment increases IFRS income by 278 in 2005 and reduces it by 183 in 2004. Note explains that fair value changes related to the underlying movement in exchange rates on available-for-sale debt securities are recognized in income under IFRS but included in equity under . GAAP.
The third largest adjustment between IFRS and . GAAP net income relates to pensions and other post-employment benefits. The adjustment reduces 2005 IFRS income by 181 and reduces 2004 IFRS income by 82. Note explains that actuarial gains and losses arising from differences between expected and actual changes in the fair value of assets and liabilities in the company' s pension and post -employment defined benefit plans are immediately recognized in income under IFRS. Under . GAAP, they are only recognized in income when they exceed specified levels.
d. Student responses will vary and there is no right answer. Of the three items discussed
above making up the intangible assets adjustment, the largest item relates to purchase versus pooling accounting. An argument
can be made that the . GAAP treatme nt is superior si nee both IFRS and GAAP now require bus in ess comb in ati ons to be treated as a purchase. The second largest item relates to acquired in-process R&D and whether it is an asset. Arguably it is — it is part of the value that the purchasing
company paid for. The adjustments related to available-for-sale securities and pensions
国际会计第七版课后答案作者：弗雷德里克
