What is the difference between reported and core results

Recent events in the United States have highlighted the importance of high quality auditing standards and, at the same time, have raised questions about the effectiveness of today's audits and the audit process. Audit requirements may not be sufficiently developed in some countries to provide the level of enhanced reliability that investors in U.

Nonetheless, audit firms should have a responsibility to adhere to the highest quality auditing practices -- on a world-wide basis -- to ensure that they are performing effective audits of global companies participating in the international capital markets. To that end, we believe all member or affiliated firms performing audit work on a global audit client should follow the same body of high quality auditing practices even if adherence to these higher practices is not required by local laws.

Audit Firms with Effective Quality Controls Accounting and auditing standards, while necessary, cannot by themselves ensure high quality financial reporting. Audit firms with effective quality controls are a critical piece of the financial reporting infrastructure. Independent auditors must earn and maintain the confidence of the investing public by strict adherence to high quality standards of professional conduct that assure the public that auditors are truly independent and perform their responsibilities with integrity and objectivity.

As the U. Supreme Court has stated: "It is not enough that financial statements be accurate; the public must also perceive them as being accurate. Public faith in the reliability of a corporation's financial statements depends upon the public perception of the outside auditor as an independent professional The quality control policies and procedures applicable to a firm's accounting and auditing practice should include elements such as: 7 independence, integrity and objectivity; personnel management, including proper training and supervision; acceptance and continuance of clients and engagements; engagement performance; and monitoring.

A firm's system of quality control should provide the firm and investors with reasonable assurance that the firm's partners and staff are complying with the applicable professional standards and the firm's standards of quality. Historically, audit firms have developed internal quality control systems based on their domestic operations. However, as clients of audit firms have shifted their focus to global operations, audit firms have followed suit and now operate on a world-wide basis.

Therefore, quality controls within audit firms that rely on separate national systems may not be effective in a global operating environment. We are concerned that audit firms may not have developed and maintained adequate internal quality control systems at a global level.

Profession-Wide Quality Assurance The accounting profession should have a system to ensure quality in the performance of auditing engagements by its members. In some jurisdictions the local accounting profession may have a system of quality assurance. However, structures focused on national organizations and geographic borders do not seem to be effective in an environment where firms are using a number of affiliates to audit enterprises in an increasingly integrated global environment. Active Regulatory Oversight The U.

Each of these elements is essential to the success of a high quality financial reporting framework. This oversight reinforces the development of high quality accounting and auditing standards and focuses them on the needs of investors. It provides unbiased third party scrutiny of self-regulatory activities. Regulatory oversight also reinforces the application of accounting standards by registrants and their auditors in a rigorous and consistent manner and assists in ensuring a high quality audit function.

The form and content requirements for financial statements filed with the Commission are set forth in Regulation S-X. A foreign private issuer using accounting standards other than U. GAAP must provide an audited reconciliation to U. For example, we have amended our requirements for financial statements of foreign private issuers to permit use of certain IASC standards without reconciliation to U.

By requiring a U. GAAP reconciliation, with the exceptions noted above, we do not seek to establish a higher or lower disclosure standard for foreign companies than for domestic companies. Rather, the objective of this approach is to protect the interests of U. GAAP reconciliation requirement requires foreign issuers to supplement their home country financial statements.

The total number of foreign reporting companies increased from in to approximately 1, currently. Towards Convergence of Accounting Standards in a Global Environment In the past, different views of the role of financial reporting made it difficult to encourage convergence of accounting standards.

Now, however, there appears to be a growing international consensus that financial reporting should provide high quality financial information that is comparable, consistent and transparent, in order to serve the needs of investors. Over the last few years, we have witnessed an increasing convergence of accounting practices around the world.

A number of factors have contributed to this convergence. First, large multinational corporations have begun to apply their home country standards, which may permit more than one approach to an accounting issue, in a manner consistent with other bodies of standards such as IASC standards or U. Second, the IASC has been encouraged to develop standards that provide transparent reporting and can be applied in a consistent and comparable fashion worldwide.

Finally, securities regulators and national accounting standard-setters are increasingly seeking approaches in their standard-setting processes that are consistent with those of other standard-setters. If convergence of disclosure and accounting standards contributes to an increase in the number of foreign companies that publicly offer or list securities in the U. Although the U. GAAP requires, current disparities in accounting practices may be a reason foreign companies do not list their securities on U.

As Congress has recognized, [E]stablishment of a high quality comprehensive set of generally accepted international accounting standards would greatly facilitate international financing activities and, most importantly, would enhance the ability of foreign corporations to access and list in the United States markets.

GAAP, as a result of improvements in the quality of information available to both management and shareholders as a result of reporting under U. Investors benefit when they have the ability to compare the performance of similar companies regardless of where those companies are domiciled or the country or region in which they operate. Over the years, we have realized that foreign companies make their decisions about whether to offer or list securities in the United States for a variety of economic, financial, political, cultural and other reasons.

Many of these reasons are unrelated to U. These companies have indicated that they have forgone listing in the United States rather than follow accounting standards that they have not helped formulate. Therefore, accepting financial statements prepared using IASC standards without requiring a reconciliation to U. On the other hand, other factors could continue to deter foreign access to the U. For example, some foreign companies have expressed concern with the litigation exposure and certain public disclosure requirements that may accompany entrance into the U.

Development of the Core Standards Project After studying issues relating to international equity flows, IOSCO noted that development of a single disclosure document for use in cross-border offerings and listings would be facilitated by the development of internationally accepted accounting standards.

The focus of IOSCO's involvement in the core standards project is on use of IASC standards by large, multinational companies for cross-border capital-raising and listing. We request your views on whether the IASC standards: 1. In responding to the requests for comment set forth below, please be specific in your response, explaining in detail your experience, if any, in applying IASC standards, and the factors you considered in forming your opinion.

Please consider both our mandate for investor protection and the expected effect on market liquidity, competition, efficiency and capital formation. However, copies of the standards have been placed in our public reference rooms. For your convenience, a listing of questions is included as Appendix A. Are the Core Standards Sufficiently Comprehensive? The goal of the core standards project was to address the necessary components of a reasonably complete set of accounting standards that would comprise a comprehensive body of principles for enterprises undertaking cross-border offerings and listings.

In developing the work program for the core standards project, IOSCO specified the minimum components of a set of "core standards" and identified issues to be addressed by the IASC. Why or why not? GAAP for specialized industry issues in the primary financial statements or permit use of home country standards with reconciliation to U. Which approach would produce the most meaningful primary financial statements? Is the approach of having the host country specify treatment for topics not addressed by the core standards a workable approach?

Is there a better approach? Why or Why Not? When we refer to the need for high quality accounting standards, we mean that the standards must result in relevant, reliable information that is useful for investors, lenders, creditors and others who make capital allocation decisions. To that end, the standards must i result in a consistent application that will allow investors to make a meaningful comparison of performance across time periods and among companies; ii provide for transparency, so that the nature and the accounting treatment of the underlying transactions are apparent to the user; and iii provide full disclosure, which includes information that supplements the basic financial statements, puts the presented information in context and facilitates an understanding of the accounting practices applied.

Such standards should: be consistent with an underlying accounting conceptual framework; result in comparable accounting by registrants for similar transactions, by avoiding or minimizing alternative accounting treatments; require consistent accounting policies from one period to the next; and be clear and unambiguous.

In assessing the quality of the IASC standards, we are applying these criteria on a standard-by-standard basis, as well as to the IASC standards as a whole. In comment letters submitted to the IASC, the SEC staff has raised concerns including, but not limited to: the ability to override an IAS where application of the IAS would not result in a "true and fair view" see IAS 1 ; the option to revalue property, plant and equipment to fair value see IAS 16 ; transition provisions that permit unrecognized minimum pension and employee benefit obligations see IAS 19 ; the amortization of negative goodwill to offset restructuring costs see IAS 22 ; unlimited useful lives for goodwill and other intangibles see IAS 22 and IAS 38 ; the capitalization of costs related to the development of internally generated intangible assets see IAS 38 ; the remeasurement of impaired assets at an amount other than fair value see IAS 36 ; and principles for derecognition of financial assets, and a modified form of basis adjustment for cash flow hedges, including hedges of anticipated transactions and firm commitments see IAS Indeed, we are seeking advice on any technical issues arising with respect to the IASC standards.

In general, we are seeking to determine whether preparers, auditors and users of financial statements have identified particular issues based on their experience with the IASC standards and whether they have developed strategies for addressing those issues. We also would benefit from the public's views regarding whether any of the standards represent a significant improvement over U. The focus of the staff's comments to the IASC has not been on the differences between the proposed standards and U.

GAAP; rather, the staff focused on the quality of the proposed standards. An analysis of the differences, however, could serve as a useful tool for highlighting what differing information might be provided in financial statements prepared using IASC standards compared with U.

GAAP financial statements. GAAP are significant, the financial position and operating results reported under the IASC standards may be difficult to compare with results reported under U.

The ability to make such a comparison is important for an investor making capital allocation decisions between U. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. These choices will be signaled globally to our partners and will not affect browsing data.

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Your Practice. Popular Courses. Key Takeaways GAAP standardizes financial reporting and provides a uniform set of rules and formats to facilitate analysis by investors and creditors. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Related Articles.

Financial Analysis Pro Forma Statements vs. Partner Links. What Exactly is 'Book Income'? It is subtracted from net earnings in the following period. A company might intend to use retained earnings to pay off debts or to expand its operations in ways that generate future income. Or it can simply be kept as a reserve. Knowing how much profit to use to pay dividends and how much to keep as retained earnings is part of good business management.

Watching a company's retained earnings per share over time can help determine if a company is handling its profits wisely. Cash EPS is operating cash flow divided by diluted shares outstanding. Cash EPS is important because it is a purer number. That is, it represents real cash earned and it cannot be manipulated as easily as net income. Although there are many factors to consider, the company that has the cash is generally in better financial shape. As noted, EPS is the total net income divided by the number of shares outstanding.

However, either of those numbers can change depending on how you define earnings and shares outstanding. Corporate spin doctors try to focus media attention on the number the company wants in the news, which may or may not be the EPS that is reported in documents filed with the Securities and Exchange Commission SEC. This is why investors must read carefully and know what type of earnings are being used in the EPS calculation.

The number of shares outstanding can be stated as either primary or as fully diluted. Investors tend to prefer diluted EPS because it is a more conservative number. The number of diluted shares can change as share prices fluctuate, but generally, traders assume that the number is fixed as stated in the FCC filing.

Regulations require public companies to list both versions in their financial statements. Sometimes, diluted and primary EPS are identical, because the company does not have any options, warrants, or convertible bonds outstanding.

Companies can focus on either when talking to investors and the media, so investors need to be sure which is the focus. Financial Ratios. Investing Essentials. Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights.

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