Discuss at least five characteristics that predict relatively low disclosure levels in Mexico.
Presently, voluntary annual reports disclosure, as well as other financial information, are research fields with rapid growth. In this regard, several factors play crucial roles with studies showing phenomenal extents of corporate voluntary disclosure. Notwithstanding, however, the case of Mexico presents pertinent impediments to the discourse of financial disclosure. Fundamentally, Mexico’s history shows much influence on financial information disclosure within the country and is the prime barrier to proper dissemination of information to stakeholders. After independence, the country’s political class ensured non-cooperation of information sharing in a bid to prevent wrongful dispersion. According to novelist and historian Hector Camin, powerful elites in Mexico have the nagging habit of hijacking sensitive information. Such situations have led the country to not only value sensitive information but also protect it at all cost. These practices, in turn, lead to poor disclosure practices.
The political wheel’s influence on information disclosure goes back to the 1994 currency collapse that rendered the country nearly economically crippled. The Mexican government refused to release significant macroeconomic information regarding international banking. In addition to political influence, accounting rules and standards in Mexico are quite numerous with an equally substantial number of bodies regulating the same. Bodies such as the Mexican Council for Research and Development of Financial Information Standards require the preparation of final statement according to their policies and not the company’s standards ("Accounting and accounting rules in Mexico", 2019). Such modes of standardization of the Mexican Financial Information Standards show massive information control with the potential of curtailing critical information necessary for stakeholders within the fiscal sector.
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In addition, an impediment to disclosure is the requirement by Mexican companies to produce their financial statements in Spanish. While this is perfectly acceptable in regards to national sovereignty, it results in cultural limitations for the foreign investor looking for rapid insight into investment opportunities, predominantly in stock trading. Corporate size also determines the amount and frequency of information dispensation in Mexico. According to the Mexican Institute of Public Accountants, corporations with gross incomes above MXN 100 million and/or with assets above MXN 79 million have an obligation to publish their balance sheets, daily ledgers, and profit and loss account statements (Cabral, Mollick & Saucedo, 2018). While such prerequisites certainly uphold disclosure levels, in the case of smaller upcoming companies, the opposite is true, which affects potential investors.
Discuss characteristics or features that predict relatively high levels of disclosure in Mexico.
While the country’s low disclosure levels are evident, high disclosure is presently becoming the norm. Central to high disclosure practices is the increasing presence of Foreign Direct Investment (FDI). Present statistics show Mexico as a high destination for FDI. According to the 2016 United Nations Conference on Trade and Development, Mexico is the thirteenth largest recipient of FDI with more than $30 billion given out in 2015 alone ("IMCPIMCP - Instituto Mexicano de Contadores Públicos", 2019). Including the fact that such FDI performance stems from its macroeconomic discipline and the reform of major economic sectors such as energy, finance, and telecommunication, Mexico’s non-disclosure culture is coming to a looming end. Besides FDI, in a country ridden with drug-related crimes, increasing transparency is gradually altering the structure of economic information dispensation to a higher degree.
Moreover, politics has now taken a divergent turn from the times of the Aztec rulers, Spanish domination, and present autocratic rule to foster a worthwhile opposition willing to rewrite the rule of law. In this regard, opposing political factions are at the forefront of championing for economic reforms with the potential of establishing proper disclosure mechanisms. On a similar note, the free press has joined the fray in support of democratic tendencies within the financial sector. Fueling a healthy debate concerning access to information, Mexico’s free press is a principal determinant in the issue of information dissemination. What remains is proper policy and law enactment initiatives that offer tangible expedition processes. In this sense, Mexico should place rules and regulations compelling companies to disclose fiscal information where necessary.
Accounting measurement and disclosure practices are improving (from an investor-protection viewpoint) in many emerging- market economies. What are some of the recent improvements in these areas in Mexico? Discuss the underlying factors that help explain why the improvements are occurring.
Mexico has seen impressive disclosure practices improvement, particularly when it comes to business combinations within the country. Such occurrences have brought about the development of positive correlations with disclosure in terms of company acquisition size, dispersion of capital, firm audit size, and the participation of companies in ADR Programs. As such, the financial disclosure index has largely improved resulting in not only proper communication between company administrators and investors but also in internal understanding by employees. Such determining factors not only enhance the disclosure index but also accounting measurements. In this regard, accounting measurement improvement in Mexico has morphed significantly into standardized measurement, performance evaluation, public reporting, and managerial control, which provides core infrastructural support for quality improvement in business organizations.
Factors rendering such improvements in accounting measurement and disclosure practices often permeate due to the dynamic nature of present business objectives and goals as well as the need to sensitize stakeholders concerning future trajectories in business. The International Financial Reporting Standards (IFRS) body shows the underlying potent factor that is the indulgence of better quality information not only for business enterprises but also for stakeholders (Holt, 2019). In this sense also, owing to a history of non-disclosure in Mexico, the need for quality information has resulted in enhancements of disclosure practices as well as accounting measures. Coupled with foreign investment as mentioned above, the implementation of these improvements continues unabated.
References
Accounting and accounting rules in Mexico. (2019). Retrieved 24 September 2019, from https://www.nordeatrade.com/en/explore-new-market/mexico/accounting
Cabral, R., Mollick, A., & Saucedo, E. (2018). FOREIGN DIRECT INVESTMENT IN MEXICO, CRIME, AND ECONOMIC FORCES. Contemporary Economic Policy , 37 (1), 68-85. doi: 10.1111/coep.12401
Holt, G. (2019). Improving disclosure practices | ACCA Global. Retrieved 24 September 2019, from https://www.accaglobal.com/crsh/en/member/discover/cpd-articles/corporate-reporting/disclosure-practices.html
IMCPIMCP - Instituto Mexicano de Contadores Públicos. (2019). Retrieved 24 September 2019, from http://imcp.org.mx /
