The Czech
regulations do not require the separate reporting of discontinued operations11,
while IFRS stipulate that discontinued operations be disclosed and presented
separately in accordance with IFRS 5. In particular, IFRS 5 stipulates that
“the sum of the post-tax profit or loss of the discontinued operation and the
post-tax gain or loss recognized on the measurement to fair value less cost to
sell or fair value adjustments on the disposal of the assets (or disposal
group) should be presented as a single amount on the face of the income
statement. Detailed disclosure of revenue, expenses, pre-tax profit or loss,
and related income taxes is required either in the notes or on the face of the
income statement in a section distinct from continuing operations”.
Pursuant to
the Fourth Directive of the E.U., accounting entities should compile the profit
and loss statement vertically, allowing for the presentation of expenses either
according to their nature or function. However, if the profit and loss
statement is arranged with respect to the function of entries involved, an
accounting entity must also include a schedule disclosing the operating costs
classified with respect to their nature.
Under IAS 1,
an entity should also report the earnings per share ratio (EPS). Unlike US
GAAP, international standards do not require that costs be classified as to their
function in the profit and loss statement. Instead, they only demand that
accounting entities submit an analysis of costs classified as to their nature
or function, whichever classification provides more reliable or more relevant
information. However, the function-base classification allows for an amount of
certain discretion with respect to the assignment of costs to individual
functions.
There exist
two basic differences between the profit and loss statement compiled in
accordance with Czech rules and in compliance with IFRS11: IFRS have
revoked the obligation to report extraordinary expenses and extraordinary
revenues – as of 1 January 2005, accounting entities disclose extraordinary
expenses and revenues under their other expenses and revenues; the Czech
regulations have included the entries for re-allocation of expenses to
inventory and fixed assets and change in inventory of finished goods and work
in progress among the revenue entries. However, since IFRS do not recognize the
above entries as revenues, they have been included among adjustments to
operating expenses.
Firms with
international stock exchange listings face additional capital market pressures22
and stock exchange requirements5 that may lead them to increase
their level of disclosure. Investors demand information about the domestic
operating environment and domestic accounting regulations of foreign listed
firms24. Many stock exchanges around the world allow foreign
registrants to prepare their financial statements according to IFRS or US GAAP.
Prior studies show that the level of disclosure5,22 and the
probability of using non-local GAAP 1,10,13,19,20,23 are positively
associated with the number of foreign stock exchange listings of a firm. The
impact on financial reporting of cultural differences has been well documented24,25.
There may be more disclosure by UK and US companies that have a culture of
disclosure of information than by companies that have not traditionally aimed
to produce especially transparent financial statements (e.g. companies from
transitional economies such as the Czech Republic).
