A Comprehensive Business Reporting Model

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A Comprehensive Business Reporting Model
Financial Reporting for Investors July 2007

CFA Institute Centre Comprehensive Business Reporting Model Staff Kurt Schacht, CFA
Managing Director

Rebecca McEnally, CFA
Capital Markets Policy Group

Georgene Palacky, CPA
Director Financial Reporting Group

Members of the Comprehensive Business Reporting Model Subcommittee and the Corporate Disclosure Policy Council Gerald I. White, CFA, Chair
Grace & White Inc. New York, NY United States

Robert F. Morgan, CFA
Forbes Morgan Consulting Mont Royal, Quebec Canada

Patricia McConnell, CPA, Past Chair
New York, NY United States

Trevor W. Nysetvold, CFA
ExxonMobil Fairfax, VA United States

Jane Adams, CPA
Maverick Capital New York, NY United States

David E. Runkle, CFA
Trilogy Global Advisors, LLC New York, NY United States

David C. Damant, FSIP
London United Kingdom

Toshihiko Saito, CFA
Capital International Research Chiyoda-ku Tokyo Japan

Christian B. Dreyer, CFA
Tertium datur AG Unterägeri Switzerland

Ashwinpaul (Tony) Sondhi
A.C. Sondhi & Associates, LLC Maplewood, NJ United States

Barry Ehrlich, CFA
Och-Zeff Management Europe London United Kingdom

Edward (Ted) Stevens, CFA
BlackRock, Inc. Wilmington, DE United States

Anthony Good, ASIP
Norwich, Norfolk United Kingdom

ISBN 978-1-932495-70-6

A COMPREHENSIVE BUSINESS REPORTING MODEL:
Financial Reporting for Investors
CFA Institute Centre for Financial Market Integrity July 2007

Contents
Preface. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter 1. Why Does Financial Reporting Matter to Investors and Investment Professionals? Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 iii

Chapter 2. A Conceptual Framework for the Comprehensive Business Reporting Model A. B. C. D. Objective of Financial Reporting and Disclosure . . . . . . . . . . Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Specific Implications of the Conceptual Framework . . . . . . . 5 6 15 16

Chapter 3. The Comprehensive Business Reporting Model— Our Proposals for Revision A. The Comprehensive Business Reporting Model . . . . . . . . . . . B. Classification: Business—Operating and Investing— and Financing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C. Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D. Cash Flow Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E. Statement of Changes in Net Assets Available to Common Shareowners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F. Reconciliation of Balance Sheet, Cash Flows, and Other Changes in Net Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 20 21 22 24 29

Chapter 4. Financial Statement Disclosures
A. What Is Disclosure?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B. Disclosure Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C. Criteria for the Development of Effective and Useful Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D. Other Disclosure Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 41 41 53 56

Appendix A. Summary of Principles . . . . . . . . . . . . . . . . . . . . .

Preface
The project to develop A Comprehensive Business Reporting Model: Financial Reporting for Investors began in 2002 with a limited objective: to update a 1993 CFA Institute white paper, Financial Reporting in the 1990s and Beyond.1 This widely cited paper set forth the views of CFA Institute and its global membership on financial reporting and investors’ information requirements....
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