Reporting in general refers to a way of presenting information on a particular company’s performance. These reports include financial position’s status, profits, and cash flows. They are essential to a wide range of users, for instance stakeholders, regulators and investors. In Mexico, financial reporting is very low because of several factors. The government, which should act as the custodian of law does not have much interest in protecting the investors from discrimination by a few persons with vested interests. This is evident from the secrecy within the companies. Information on companies is kept in high secret, hence, locking out the investors from critical information, which they need for their decision making. Lack of disclosure of essential information by companies lead to a lot of secret transactions by the top executives – this reduces the trust of the investors. Citizens need to know whatever is going on in the firm for them to have confidence with their investments in the company; otherwise they will shy away from it (Choi & Meek, 2010).
Surprisingly, getting information in Mexico is left to the insiders. This results into illegal form of insider trading, which takes place in a security market, following exchange of material information, which is not offered to the general public. Insider trading is a retrogressive activity that amounts to defrauding of shareholders, and which should be punishable by the toughest terms possible. The illegal form of insider trading is the one that takes place in a security market, following exchange of material information, which is not offered to the general public. This kind of trading is not possible if transparency and disclosure of financial information is made mandatory and strictly enforced by the regulatory authorities (Choi & Meek, 2010).
Mexico’s secretiveness dates back to its history when Aztec rulers who kept their subjects amazed by powerful deities were both unpredictable and hard to understand. The Spanish used to follow multiple and complex bureaucratic rules, which were not shared with ordinary citizens. After the independence, the culture of secrecy persisted as the ruling parties made sure that the information did not get into the wrong hands. In other words, the powerful people in Mexico are historically known to kidnap information. Although the process of democratization is being ushered in, some people with vested interests are still trying to hold it back. Even the government is abetting this immoral secrecy – a case in point is when the Mexican government withheld crucial macroeconomic information from the international banking community, which exacerbated the 1994 currency collapse.
Characteristics that predict relatively high disclosure levels in Mexico
There are some processes of democratization set to address the traditional practices, whereby the powerful people kidnapped the information or retained it for themselves. This trend will bring about a compulsory disclosure policy. Furthermore, a more democratic culture can make it possible for powerless shareholders to fight for their rights (Choi & Meek, 2010).
Influx of foreign investors in Mexico is expected to bring in transparency and disclosure of financial information. Essentially, investing in an emerging market environment like Mexico is accompanied by a number of risks such as economic, political, and structural issues. Complexity in acquiring enough and reliable financial information to assess the investment threats and opportunities in such a market presents a substantial risk. Therefore, foreign investors will gather sufficient information to have confidence in the investments – this will be gotten from disclosure of financial information. This disclosure will specifically involve accounting harmonization such as improved understandability of comparability of various nations’ financial reports, and worldwide spread of high quality practices and standards (Saudagaran & Diga, 2003). Also, the government will be compelled to address the problems associated with access to information by the emerging political parties and free press.
Factors that help explain improvements in accounting measurements and disclosure practices – from an investor-protection viewpoint
Information disclosure is a very important issue, which directly impacts on investors’ protection in Mexico. Furthermore, practice of transparency in the information disclosure is likely to attract external investors. Therefore, Mexico has intensified the number of information disclosure requirements that companies should comply with. In Mexico, the investors have acquired certain powers or rights, which are protected through regulations and laws. These rights include disclosure of accounting policies, which serve investors with critical information that they require when making their decisions. The rules protecting investors come from several jurisdictions including accounting standards and stock exchange. Enforcement of these regulations is incorporated in the market regulation policies, as well as the market participants.
When listing a company on the stock Exchange in MĂ©xico, the board of directors should be guided by the requirements set out in the law of companies and the concerned rules, which require such companies to produce disclosure statement to provide the potential shareholders with adequate information about the company as they make their investment decision (Choi & Meek, 2010).
References
Choi, F., & Meek, G. (2010). International Accounting, 7th edition, Upper Saddle River, N. J.: Pearson Education. ISBN: 9780136111474.
Saudagaran, S., & Diga, J. (2003. Economic integration and accounting harmonization options in emerging markets: Adopting the IASC/IASB model in ASEAN. Research in Accounting in Emerging Economies, 5, 239-266.