In conclusion, a company’s financial statements regarding its financial position are critical to all concerned. First and foremost, these financial statements provide critical tools for companies to make decisions to improve its share value in the global market of fierce competition. Secondly, they provide accountability to shareholders and stakeholders in the company providing better stability in its business practices and requirements regarding the Securities Exchange Commission (SEC) and General Accepted Accounting Principles (GAAP). Lastly, financial statements paint a picture that gives a measurable to the success of a dream once birthed long ago by an entrepreneur to get an idea to the marketplace with great expectations of striking it rich.
In today’s day and age, there is a lot of news that is related to corporate accounting fraud as companies intentionally manipulate their financial statements to show a better picture of their financial health. The objective of financial reporting is to provide financial information about a company to its various stakeholders such as investors and creditors so that these stakeholders can make decisions accordingly. Companies can show a better image of their financial well being by providing misleading information. This can be done by omitting material information from the books or deceitful appropriation of assets such as inventory theft, payroll fraud, check forgery or embezzlement. Fraudulent financial reporting will have an effect on the
Additionally, today’s society is filled with legal and ethical concerns that surround numerous individuals and their responsibility is to keep all information private and accurate. Furthermore, accounting and financial reporting is the most significant function of a business and entails a great sense of legal, ethical and technological concern.
Now, having reviewed almost all the issues related with the balance sheet, we can say in my opinion that sine its appearance a few centuries ago it has been an important and outstanding financial statement summarizing the financial position of an enterprise at a particular point in time. In the quickly developing technological environemt it might change its form, it might even change some of its principles, it will be viewed along with more and more information in the era of information, but it will keep for some more time its "position of such a great importance".
The Statement of financial position is a very useful tool full of information showing the position of an entity. However within this sheet of information lies a lot of limitations and problems. This essay will pinpoint some of the limitations and problems within the balance sheet. These limitations include how the balance sheet does not reflect the true financial position of a business, it does not reflect assets that can’t be measured monetarily and it also has a huge amount of estimated values and not actual verified values so this causes some controversy within the entity and its true position on the market. As well as the problems within the balance sheet there also lies a lot of problems with what’s left out of the balance sheet.
Financial accounting includes information distributed to external users that are not part of the enterprise, e.g. stockholders, creditors, customers and suppliers, although the information is also of interest to the company's officers and managers. (Yahoo, 2007)
Financial information regarding the operations of and resources controlled by an entity will be of interest to a wide range of stakeholders (user groups). Although, various stakeholders will be able to obtain bespoke financial information to suit their particular requirements the vast majority will have to rely on the published financial statements. Although the various user groups will have different requirements it does not follow that financial statements are not designed to meet the specific needs of all interested parties.
Schofield (2014) researches the difference between public and private company financial reporting. For instance, a private company has fewer consumers reviewing their financial statements, whereas public companies could have multiple consumers reviewing financial statements. In addition, private companies typically have less specialized accounting personnel, whereas public companies will have several. Lastly, Schofield (2014), reviewed the number of amendments proposed and finalized to help benefit private companies financial reporting.
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.
...nations for disclosures such as incremental information, hubris and retrospective sense-making. Additionally, I provide an argument for disclosure due to regulation. Finally, I discuss the notion that greater disclosure can lead to reduced cost of capital to explain disclosures made outside the financial statements. To conclude, disclosures made outside of the financial statements may relate to managing the impression of gullible shareholders in very small proportion of cases. I personally believe that there are stronger incentives for managers in the long term to engage in honest and timely disclosures such as in an attempt to reduce the cost of capital. Additionally, Kothari indicates that investors will weigh up the credibility of the disclosure, thus, acting as a further disincentive for managers to partake in bias reporting. (Kothari, et al., 2009).
“From the accountants’ perspective, what does ‘true and fair’ mean? In your opinion, is the true and fair requirements useful, or necessary?”
Financial reporting quality is related to the overall quality of the financial statements including disclosures which depict the fair presentation of the firm. Whereas in low financial reporting quality accounting figures are distorted or changed in such a way that their economic underlying reality is not correctly exhibited. For instance if the depreciable life of an asset is estimated in such a way which contradicts with its real economic life then it can be said that financial reporting quality is affected. In many cases there are alternatives available in the accounting standards or estimation and judgment is involved of the management. However, management can exploit these alternatives or judgments to change figures according to their desired outcome. For instance if management want to show lower earnings they can choose alternatives between inventory valuation methods (LIFO in case of rising prices) or lower depreciable lives. Management is usually in a position to manipulate figures because they are the ones who are responsible for preparing financial statements. American ...
Accounting information can be used by business owners to carry out a financial analysis of the businesses and their operations. The use of this information for such function is attributed to the fact that it usually contains quantitative and qualitative characteristics. While quantitative characteristics are the calculations of financial transactions while qualitative characteristics can be described as the business owner’s apparent significance of financial information. In essence, qualitative characteristics of financial information are attributes that contribute to the usefulness of information provided in financial statements. Since these qualities can sometimes be at odds with each other, they need to be balanced against each other. In addition, these qualities are essential in decision making because they provide the basis for assessing businesses and the effectiveness of their operations.
Financial statements are intended to be understandable by readers who have "a reasonable knowledge of business and economic activities and accounting and who are willing to study the information diligently."