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Regulation for financial reporting
Effects of changes in accounting standards
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“Companies’ Annual Reports have become increasingly complex over the years, sacrificing understandability for complexity”. An annual report is a detailed report for shareholders and other business partners on a company’s activities throughout the year. It is a legal requirement from the Companies Act 1985/9 that requires companies to publish their annual report and accounts. Its purpose is to present a true and fair view of the company’s annual performance and provide financial statements that are useful to existing and potential investors, shareholders, lenders and other creditors. Annual reports consist of many financial statements, which include the income statement, the balance sheet, the statement of cash flows and footnotes that …show more content…
In order for the financial information to be useful the financial statements needs to be relevant and be a faithful representation. This means that the financial accounts should provide complete and relevant information to users, which is free from error as accurately as possible and is not in any way biased, slanted or emphasized. There are four enhancing characteristics, which improves the usefulness of financial information, which are Comparability, Verifiability, Timeliness and understandability. As there are many characteristics to satisfy in order to meet the demands of the users, it becomes useless clutter, which obscures important information and gives an unclear understanding of the issues a company actually faces. The question then arises as to whether these characteristics are right, as relevant information is becoming more difficult for users to analyse a company’s progress. Annual reports are becoming increasingly complex as they strive to keep updated with the continually changing regulations. It is then stated in a report by the financial reporting council that ‘Regulators should limit constant change by intervening only when an area is high-risk and change will bring obvious benefit’ (Financial Reporting Council, 2009). However this doesn’t often occur which means annual reports no longer reflect the reality of the …show more content…
It is therefore too difficult for one document meet the number of different demands. An article in the financial times describes annual reports as becoming ‘part marketing brochure, part shareholder communication, (and) part chairman’s ego-trip’ (Bruce, 2008). Although many of the users can be identified, the question will still arise for companies to identify the users in which they produce the annual reports for. However, information cannot be useful for everyone, as separate people will see the financial statements differently, as they use it for various reasons. A solution then could be to accept the current affairs and attempt to change it or to break up the report. However the an article from the financial report identifies that splitting the annual report would ‘create huge legal and regulatory problems’ (Bruce,
The objective of financial reporting/statements is to provide information about the reporting entity’s financial performance and financial position that is useful to a wide range of users for assessing the stewardship of the entity’s management and for making economic decisions.
The Securities and Exchange Commission requires that publicly owned businesses provide annual reports, which are available to the public. Many different people use annual reports, to make informed business decisions. Management from the company uses the information to determine a number of items. Some of these items are the profitability of the company, the inventory turnover rate, and the accounts receivables rate. Creditors use the annual report to determine how well a company can satisfy its current liabilities, as well as, how the company is doing in the aspect of long tem survival. Another group of people who use the annual reports furnished by companies are the investors, who can purchase shares of stock from the publicly company. Annual reports are very important to these people, because they are an over all picture to help them determine the over all stability and reliability of the company’s financial outlook. These annual reports are important because they do not only contain the financial statements of the company, but there is a management ‘s note to discuss reasons for any unexpected numbers, and an auditor’s report, from an independent accounting firm, who either agrees or disagrees with the financial numbers. Market reporter Matt Krant said, “Ignoring these reports is akin to driving down the freeway blindfolded.”
The annual report or 10-K of a company is a useful source of information for many agents outside of the corporation. Shareholder’s can view the contents of an annual report to get a more comprehensive idea of what the company is built upon. Additionally, annual reports show a company’s progress over the past financial periods and give a detailed breakdown of company investing and operations. The 10-K and all related documents are easily accessible on a company’s website for the public to view. i
The annual report of the company shows status of the company’s business. Through the annual report of the company, creditors, investors, and everyone else can see the financial health of the business for the company. Fords and General Motors are two competitors in auto mobile industry area, and these two companies are most famous automobile companies that United States manufacturing businesses. Since these two companies are in same industry area, the investors compare these two companies which company is more worthy to invest their money. Annual report is financial certification that how a company was financially. Liquidity, solvency, and profitability are three way to compare these two companies financially.
Australian bookkeeping gauges are set by the Australian Accounting Standards Board (AASB) and have the power of law for Corporations law elements under s 296 of the Corporations Act 2001. They should likewise be connected to all other universally useful monetary reports of reporting elements in general society and private parts.Australian Accounting standards board oversee process of accouting standards if all companies registerd with ASIC complying with these standards and their financial reports are maintend with standards to keep public share holders money in safe hand in past many auditors companies used to ignore accounting standards to give companies actual financial figuers lower or higher to keep their shares prices or investors intact this lead to so many financial crises and collapse of comapanies.The case analyses the high standards required by the accounting profession in line with the requirements of the Australian Standards Board prescription. Further, the case is analyzed technically in line with the accounting standards prescribed by the institute. Here, an employee accountant of a company is asked to iron out the
According to the conceptual framework, the potential users of financial statements are investors, creditors, suppliers, employees, customers, governments and agencies, and the general public (Financial Accounting Standards Board, 2006). The primary users are investors, creditors, and those who advise them. It goes on to define the criteria that make up each potential user, as well as, the limitations of financial reporting. The FASB explicitly states that financial reporting is “but one source of information needed by those who make investment, credit, and similar resource allocation decisions. Users also need to consider pertinent information from other sources, and be aware of the characteristics and limitations of the information in them” (Financial Accounting Standards Board, 2006). With this in mind, it is still particularly difficult to determine whom the financials should be catered towards and what level of prudence is necessary for quality judgment.
An important part of financial planning for corporations is the annual report. Publically held companies are required to submit an annual report to the SEC and private companies, even though not required, can use an annual report to gauge the performance of the company for the past year and use the report to plan for the future. The financial statements that make up an annual report are the income statement, the balance sheet, and the statement of cash flows. (Melicher, 2014) Once all of the financial information has been compiled and the three statements that make up the annual report have been completed a corporation can then start to analyze the data. There are several different categories of financial ratios
I have applied the IFRS to audit half-year income statement and statement of finical position from domestic sub-company or oversea branches. This allows me to understand the difficultly of dealing with accounting report form different nations. For example, we have to negotiate each report from the U.S. with their reporter by phone. It would take incredibly long time to explain the difference in order to adjust the figures in the reports. During the stuff training, we have been taught that to be professional at everywhere and anytime. Moreover, I realise that the most important feature to be a professional accountancy is responsibility. This is because that a unit of misallocation will cost other team number a huge amount of work to correct it. The experience of taking notes of weekly conferences between senior managers and PWC partner has indicates that how does change in financial policy influence the accounting treatment. For instant, since vice-perminster Mr Le Ke Qiang who visited China Construction Bank at earlier May. He point out that the Rate of Non-Performing Loans could not exceed 7% in the “BIG Four” Chinese bank. This has led Chinese bank to relax its accounting standard of credit rating. It allows me to understand the relationship between government and financial
The Purpose of Financial Statements The financial statements of a business are used to provide information about the status of the business, set performance targets and impose restrictions on the managers of the firm as well as provide an easier method for financial planning. The financial statements consist of the Profit and Loss Account, Balance Sheet and the Cash Flow Statement. There are four areas of information, which we can collect from a company's financial statements. They are: Ÿ Profitability - This information comes from the Profit and Loss account. Were we can compare this year's profit with the previous years.
To entice new investors, most companies assemble their financial statements on fine paper with pleasing graphics and photos in an annual report to shareholders, attempting to capture the excitement and culture of the organization in a "marketing brochure" of sorts.
The globalization of business has resulted in the need for compatible accounting standards that can be used internationally for financial reporting. As a result, the International Financial Reporting Standards (IFRS) were developed by the International Accounting Standards Board (IASB) to unify the various financial reporting methods and create a single accounting standard which can be applied to any financial statement worldwide (Byatt). The global standardization of financial reporting will increase the readability and enhance comparability of globally traded companies’ financial statements, without the need of conversion or translation. There are a few main differences between the International Financial Reporting Standards (IFRS) and the U.S. Generally Accepted Accounting Principles (U.S GAAP). The increasing recognition and acceptance of the International Financial Reporting Standards by accounting professionals in the United States, will affect the way in which the U.S will record financial statements in the future.
Accounting standard is a set of guidelines that financial accountants have to follow in preparation and presentation of business incomes, expenses, assets and liabilities. This helps to ensure that the treatments of these items are fair and just, hence making the financial statements a reliable source for users. There are many types of accounting standards being used all over the world. More than 120 countries such as the European Union, Singapore, India, Taiwan, Australia and Canada adopt the International Financial Reporting Standard (IFRS), which is developed by the International Accounting Standard Board (IASB). It is a principle-based approach. On the other hand, United States of America is using the Generally Accepted Accounting Principles (GAAP) developed by Financial Accounting Standard Board (FASB), which is rules-based. Over the last decade, these two boards have been working together towards convergence. (1) Why did they take this approach? Why is it important to practise the same standard across firms and countries? It is said that uniform accounting standard produces uniform financial reporting. Hence, all financial information will be treated and presented in the same manner globally.
Preparing general-purpose financial statements can be simple or complex depending on the size of the company. Some statements need footnote disclosures while other can be presented without any. Details like this generally depend on the purpose of the financial statements.
The financial statement analysis is a vital part of the annual report, and must be done in a timely manner to show all investors, shareholders,
Chorafas, N. D. (2000). Reliable financial reporting and internal control: a global implementation guide: New York: John Wiley Publishers.