Links between financial reporting and capital markets

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Links between Financial Reporting and Capital Markets

Module 26331

Word count: 2330


Accounting and finance are two faces of globalization. We find the fruits of globalization in the products we buy every day but is also seen more particularly in the standards that govern certain services. Increased the number of trade or otherwise, resultingfrom globalization, have created links between nations and these links are sometimes the last resort to peace. All these treatments to reduce the barriers between states are the bedrock of poses first international regulations. The "northern countries" which have virtues more liberal push continually order to facilitate international trade. This race to globalization has led to incessant financialexchanges. The opening of borders allows investors to explore overseas and a global capital market is now open. Thus, the development and the densification of a capital market highlighted a problem. How to regulate trades in order to be the fairest and impartial? Each nation has its own mode of proceeding in the business world. These differences are found even in the accounting. If a companywishes to prosper mainly on the domestic market, the question of understanding of financial reporting arises less. However, as businesses begin to have referred to international and misunderstanding can take place to comply with the rules of another country and then another financial system.

According to Frederick D.S Choi Gary K.Meek (2008) one of the four pillar of a successful reporting systemis the harmonization and the convergence of different accounting systems become now relevant to make financial reports understandable to all participants and therefore ensure the sustainability of the capital markets and their efficiently.

The 1989’s International Accounting Standards Committee (IASC) published the “Framework for the preparation and presentation of Financial Statements”, a firststep in introducing common accounting standards. They concretised that framework ten years later with the Statement of Principles for Financial Reporting. These principles are the basis of today’s standards. (Dyson, R., 2007). Then later, in 1995, the second steps come. An accounting system where convergence is the main aspects has been published.

Policy makers will have the principal role inestablishing relevant standards for companies who want to access the capital market. As for, it seems to be important to explain in a first part the capital market and companies investment. Then we will discuss about the International Accounting Standards and its limits. We will study in the last part the way to regulate the International Accounting Standards.

I. Capital market andcompanies investment

First of all, the role of the capital market is part of another essential market, the financial one. This last link the money provided by people and institutions whose save to people or institutions that borrow and invest thanks to financial tools like bonds, stock or notes called securities.

Financial information needs to be provided by companies if they want to reach themarket. A financial paper or a financial statement has to be edited by companies in the financial reporting. Choi F. D. S. (2008) explained that a financial statement is necessary for companies which are listed. The most part of Northern countries like Italia, England, Spain or the financial statements quite the same manner. It includes papers other managers, one from a company whichaudit, a balance sheet, an income statement, and marks include on the financial statement.

Companies are always looking for investor and people, funds or institutions that plan to inject money in their own project. Money is the key element to everything for companies. They need it to prosper. To let their growth continuing, companies have to make several investments materials or immaterial like...
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