University of Technology, Jamaica
Financial Reporting and Analysis
UNIT 1A:
The Regulation of Financial Reporting
A substantial number of bodies with different regulatory power and functions make up the regulatory
framework in Jamaica. These include the:
a) Bank of Jamaica (BOJ);
b) Financial Services Commission (FSC);
c) Jamaica Deposit Insurance Corporation (JDIC);
d) Financial Regulatory Council (FRC);
e) Public Accountancy Board (PAB);
f) Institute of Chartered Accountants of Jamaica (Institute/ICAJ);
g) Companies Office of Jamaica (formerly, Registrar of Companies);
h) Fair Trading Commission (FTC);
i) Office of Utilities Regulation (OUR);
j) Bureau of Standards of Jamaica (BSJ);
k) National Environmental Protection Authority (NEPA);
l) Jamaica Intellectual Protection Authority;
m) Jamaica Stock Exchange (JSE).
The processes of preparing, reporting, and interpreting the accounting data of an organization are
governed by various theoretical regulations and accounting standards. These are established both on
the basis or either a legal and a professional requirement.
1.
Legal Requirements of Accounting for Companies
Various legislations have been enacted to regulate and to guide the procedures involved in the
preparation of accounting statements.
Among the more established regulations are:
1.
The Company’s Act: Applicable to both private and public companies
2.
The Securities Act:
Applicable to companies listed on the Jamaican Stock Exchange.
3.
The Banking Act:
Applicable to all commercial banks
4.
The Financial Institutions Act:
Applicable to merchant banks
Note that both the Banking and Financial Institutions Acts contain more specific accounting
requirements over and above that stipulated in the Companies Act.
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Accounting Requirements of the Companies Act
The original concern of the Act was to afford some protection to the providers of capital (the
shareholders), where day to day internal management was carried out by the directors, ensuring that
the shareholders were given adequate information to judge whether the company was being managed
efficiently and to determine the trading position, profit and value of the company.
The Act provides for the rules and regulations that govern the incorporation, regulation and winding up
of Jamaican companies. Sections 142-156 of the Act state the broad requirements for the accounts and
audit of a company. Section 142 of the Act provides that a company must keep “proper books of
accounts”.
On completion of the final accounts, Sections 150 and 151 require that the statements should be:
a)
b)
c)
d)
2.
signed by two or three directors on behalf of the Board
circulated to all members of the company, all debenture holders, and to all other persons so
entitled, not less than twenty-one days before the annual general meeting.
tabled in the annual general meeting
included in the annual returns that are made to the Registrar of Companies
Professional Requirements of Accounting for Companies
In light of current practice, the Companies Act sets out only the minimum provisions for disclosure in
the accounts, leaving some requirements open to varying interpretations. In order to obtain the
desirable levels of communication, comparability, consistency and disclosure, the accountancy
profession found it necessary to lay down specific recommendations and principles to guide its
members in the preparation of financial statements. In Jamaica these recommendations and principles,
after the practice internationally are called “Standards”, but more specifically are designated
“International Accounting Standards”.
The formation of the Institute of Chartered Accountants of Jamaica (ICAJ), the passing of the
Companies Act and the Public Accountancy Act, 1968, all contributed to the development of
accountancy in Jamaica. The latter Act established the ICAJ as a body corporate with certain
responsibilities such as the acceptance and regulation of its students and members. In 1989 Jamaica
joined with other Institutes of Chartered Accountants in the region in the formation of the Caribbean
Institute of Chartered Accountants, an apex body which works towards harmonization of the
profession within the Caribbean.
ACCOUNTING STANDARDS
In general, published accounts are required to conform to relevant accounting standards. Different
bodies are established specifically to issue accounting standards. The main objective of issuing
standards is to obtain a desired level of communication, comparability, consistency and disclosures.
The accounting profession found it necessary to lay down specific recommendations and principles to
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guide its members in the preparation of financial statements. The current structure of bodies is as
follows:
COUNTRY
Major Body
Standard Setting Body
Standards
JAMAICA
ICAJ
IASB
IFRS (IAS)
USA
FASB
FASB
SFAS
UK
FRC
ASB
FRS
INTERNATIONAL
IASC
IASB
IFRS (IAS)
The International Accounting Standards Committee (IASC) has been working for more than 25 years
to develop a set of accounting standards which can be used to bring about uniformity in financial
reporting around the world. Uniform accounting will reduce the cost of preparing financial statements
for multinational companies and perhaps more importantly, facilitate the jobs of investment analysts,
investors, and other users in assessing business results.
The international standard-setting process
Until recently few people were very concerned about the differences in accounting standards. But as
companies become more international in scope, a need exists for accounting standards that will allow
users to make valid comparisons among the financial statements of companies located in different
countries. More and more companies are “thinking globally” when they seek access to debt and equity
capital, raw materials, labor, and customers. The growing globalization of business enterprises and
international capital markets is creating much current interest in common, worldwide standards.
In 1973, the International Accounting Standards Committee (IASC) was formed to develop
International Accounting Standards (IASs) and to promote harmonization between accounting
principles of different countries. The term harmonization refers to reducing or eliminating national
differences in accounting principles. Accounting is not the same in all countries, and is strongly
influenced by the economic, political, and social environment of the country in which it exists. These
social, political and environmental differences among countries are too many to expect complete
harmonization of standards. Therefore individual countries were free to choose the degree to which
IASs had to be followed within their jurisdiction. Economically developed countries (e.g. the USA and
the UK) developed their own national accounting standards, so IASs had no direct authority in these
countries. However several countries without their own domestic standard-setting bodies decided to
adopt the IASs wholesale. Although differences exist among countries, the most basic aspects of
accounting are consistent throughout the world. Double-entry systems, accrual accounting, and the
income statement and balance sheet are used worldwide. Therefore similarities in financial reporting
exceed the differences.
The IASC grew in authority during the 1970s and 1980s, with more and more countries taking an
interest in its activities. However two developments in the 1990s propelled the IASC to the forefront
of international accounting:

the International Organization of Securities Commissions (IOSCO) endorsement of
IASs as the basis for preparing accounts to support cross-border listing
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
the European Union (EU) proposal to require all listed European companies to prepare
their consolidated accounts in accordance with IASs, by 2005 at the latest.
A new structure
In 1999 the Board of the IASC approved a report ‘Recommendations on Shaping IASC for the Future’
which recommended that a new structure for the IASC was required to reflect the IASC’s increased
importance. Therefore with effect from April 2001 the IASC has adopted a new constitution and a
new structure.
The IASC Foundation is the supervisory body for the new structure. The 19 trustees of the
Foundation are responsible for governance issues and ensuring that each body is properly funded.
The IASB is an independent, privately-funded accounting standard setter based in London, UK. The
Board is committed to developing, in the public interest, a single set of high quality understandable and
enforceable global accounting standards that require transparent and comparable information in general
purpose financial statements. The IASB is solely responsible for issuing new International Accounting
standards. The IASB has announced that, in future, its new standards will be called International
Financial Reporting Standards (IFRSs), but the existing standards will continue to be called
International Accounting Standards (IASs). Note that now the term ‘IASC’ is used to refer to the
whole structure of the new organizations in the above diagram, while the IASB is just the standardsetting body.
The overall objective of the Board is to harmonize and improve accounting principles used in the
preparation of financial statements, and to have them accepted worldwide so that financial statements
may be internationally comparable and acceptable.
Basically, the IASB is geared towards:

promoting the convergence of accounting standards around the world.

reducing the number of alternative accounting treatments around the world.
The IFRIC issues rapid guidance on accounting matters where divergent interpretations of IASs have
arisen.
The SAC provides a forum for a range of experts from different countries and different business
sectors to offer advice to the IASB when drawing up new standards.
Overall Objectives of the IASC
According to the new constitution, the IASC’s objectives are:

to develop, in the public interest, a single set of high quality, understandable and
enforceable global accounting standards that require high quality, transparent and
comparable information in financial statements and other financial reporting to help
participants in the world’s capital markets and other users make economic decisions
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

to promote the use and rigorous application of those standards, and
to bring about convergence of national accounting standards and International
Accounting Standards to high quality
The Development of IAS
The procedure for the development of an IAS (to be called an IFRS in the future) is as follows:



The IASB identifies a subject and appoints an Advisory Committee to advise on the
issues
The IASB publishes an Exposure Draft for public comment, being an draft version of
the intended standard
Following the consideration of comments received on the draft, the IASB publishes the
final text of the standard.
The authority attaching to IASs
Neither the IASC nor the accountancy profession has the power to enforce compliance with IASs.
Nevertheless, as stated above, some countries adopt IASs as their local standards, and others ensure
that there is minimum difference between their standards and IASs. In recent years, the status of the
IASC and its standards has increased, so IASs carry considerable pervasive force throughout the world.
The Standing Interpretations Committee
In 1997 the IASC formed the Standing Interpretations Committee to ensure proper compliance with
IASs by considering points of contention where divergent interpretations have emerged and issuing an
authoritative view. The SIC continues this role under the new constitution. Thirty-one interpretations
have been issued by the SIC to date.
SICs are important because IAS 1 states that financial statements cannot be described as complying
with IASs unless they comply with each IAS and each interpretation from the SIC.
The SIC has now been re-named the International Financial Reporting Interpretation Committee
(IFRIC).
The IASC and IOSCO
IOSCO, the International Organization of Securities Commissions, is an influential organization of the
world’s stock market regulators, in which the US Securities and Exchange Commission (SEC) is a key
member.
In 1995 the IASC agreed with IOSCO that the IASC would develop a set of core standards. If IOSCO
were satisfied with these standards, IOSCO would then endorse IASs as an acceptable basis of
accounting for cross-border capital raising and listing purposes in all global markets (including the
US).
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The IASC completed its core standards with the issue of IAS 39 in December 1998 and submitted
them for endorsement by IOSCO. In May 2000 this endorsement was finally given. IOSCO has now
recommended that its members (including the SEC) should permit multinational issuers to use IASs to
prepare their financial statements for cross-border offerings and listings.
The IASC and the European Union
The European Commission (EC) continues to press for the whole of the EU to operate as one single
economic unit. Following the introduction of the single internal market and the single currency (the
euro), the EC is now seeking to adopt a single set of accounting standards.
In 2000 the EC proposed that, by the year 2005, all EU listed companies should have to prepare their
consolidated accounts in compliance with IASs. This should improve the efficiency of the capital
market across the EU.
3.
Jamaican Stock Exchange’s Requirements of Accounting for
Listed Companies
In addition to the above, additional information is required of those companies who have their shares
listed on the stock exchange. Rules relating to companies listed on the Jamaican Stock Exchange can
be obtained from the following source: http://www.jamstockex.com/rule/rl-lstco.htm#Financial
Statements.
Among the specific requirements of the Stock Exchange are:
a)
Quarterly Financial Statements
All companies should submit to the Stock Exchange two (2) copies of their quarterly financial
statements, within forty-five (45) days of the end of the period to which the statements relate.
b)
Annual Financial Statements
Similar to the requirements for quarterly financial statements, companies must also submit their
annual financial statements. These would be all-encompassing for the period, and would also
include comparative analysis of the previous year; as well as appropriate disclosures and
supplementary information. The annual financial statements must be submitted no latter than
ninety (90) days after the year-end date.
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c)
Annual Report
Along with the financial statements, companies must also circulate copies of annual reports.
Within one-hundred-and-twenty (120) days of the company’s financial year-end, a printed copy
of the company’s Annual Report, which shall include the shareholdings of directors and senior
management and their connected persons, shall be forwarded to each of the company’s
share/stockholders and six (6) copies forwarded to the Stock Exchange.
Generally the annual report should contain the following items:
The directors’ report
The report of the auditors
The financial statements
Notes the accounts
Statements of Accounting Policies
1.
2.
3.
4.
5.
1.
The Directors’ Report
In this report the directors give a brief description of the results for the year along with
information on some of the following items:
a.
b.
c.
d.
e.
2.
Dividends for the year
Future developments
A listing of the different directors and their individual interests (holdings)
Major subsequent events
Any research & development in progress
The Report of the Auditors
This report covers the information contained in the four financial statements: the income
statement, statement of changes in equity, balance sheet & cash flow statements. The auditors
are appointed by, and are responsible to the members (shareholders) of the company and must
report to them on the accounts prepared by the directors.
Note- the directors are responsible for preparing the accounts. The audit report does not certify
the accuracy of the accounts but instead it expresses the opinion that the accounts show a true
and fair view. Also of note is that auditors must be qualified and are also expected to exercise
an appropriate level of skill and judgment throughout their work.
3.
The Financial Statements
These include the Statement of profit and loss statement and other comprehensive income,
statement of changes in equity, statement of financial position and cash flow statement.
Although these are the primary ones, others may be included e.g., Group related information
(group companies), multi-year summaries etc.
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4.
Statements of Accounting Policies
This section may include the identification of the company (location) and its principal activities
(nature of the company’s business), the basis used in preparing the financial statements, the
rationale for the use of estimates by management etc.
5
Notes to the Accounts
Included here is information which supplements as well as details summary data included in the
major statements e.g.
a.
b.
c.
d.
4.
Details of fixed assets showing movement throughout the year
Details of share capital
Details of the earnings per share calculation, taxation and dividends
Other information including: exceptional items, extraordinary items, contingencies,
subsequent events etc.
The Role of the Auditor
To solve the problem of credibility, an auditor examines the information that managers use to prepare
the financial statements and provides assurance about those statements. Upon seeing the auditor’s
assurance that the financial statements provide a fair and accurate picture of a company’s economic
circumstances, investors can feel more comfortable about using the information to guide their investing
activities. Therefore, an audit is an examination of transactions and financial statements made in
accordance with generally accepted auditing standards.
The auditor’s duty (Jamaican Companies Act – Section 156)
The auditors are required to make a report (audit report) on the accounts examined by them and on
every balance sheet, profit and loss account and on all group accounts laid before the company in a
general meeting during their tenure. The report shall contain statements as to the matters mentioned in
the Tenth Schedule (Jamaican Companies Act)
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5.
Users of Financial Statements
Internal Users
1.
Management
2.
Employees
These need information to assist them in basic planning and control.
External Users
1.
Debt holders – debenture holders and other loan creditors
2.
Investors/Analysts – financial analysts, stockbrokers, journalists, credit rating companies
and economists.
3.
Business interest groups – customers, suppliers, trade creditors and competitors
4.
Government – tax authorities, regulatory bodies e.g., BOJ
5.
Public – political parties, environmental groups
6.
Other interest groups – churches etc
These represent those users who are outside the business enterprise who have or contemplate having a
direct or an indirect interest in the enterprise.
Bibliography
http://eifrs.ifrs.org
ACCA paper F7: Financial Reporting Study Text. (2015). London: BPP Learning Media
Mendez, M., McLean, R.A., Regulatory Framework of Accounting in Jamaica, 3rd Edition, CFM
Publications, 2001.
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