In this assignment I shall examine whether off balance sheet information can be the main cause of undermining the financial transparency of company financial statements. More specifically, I will start analysing the general objective of financial statements linking it to transparency of financial statements. Furthermore, I will discuss critically about off balance sheet information giving a definition and examples of which items can be considered as “off balance sheet”. Moreover, I will discuss the benefits and the disadvantages of using “off balance sheet” information in the financial statements by referring to a UK case. In the concluding paragraph my personal view will be given, based on the above research giving the reasons why I agree and in what extend with the particular comment. Traditionally, accountants have followed an objective of Financial statements. According to Alexander and Britton(1993): “The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions”.Moreover, Financial statements of a corporation should give a positive impact to whoever is interested recording every entry clearly. As a consequence, investors or other users who are interested in making economic decisions are also interested in transparency of financial statements. Financial transparency can be described as a high quality and clear financial statement. Moreover, for corporations, transparency is including visible information which is understandable for investors and everyone else who is interested in making economic decisions. Furthermore, transparency is playing a substantial role in... ... middle of paper ... ...of the companies are using off-balance sheet information in their financial statements nowadays. This is a result of the many benefits that the off-balance sheet information can offer to financial statements. On the one hand, using off-balance sheet information has its disadvantages. Through Enron and Lehman brother’s scandals, it can be concluded that off-balance sheet information can only be “benefit” for company executives. On the other hand, it can be the cause of many disadvantages for everyone even to company executives. As a consequence even if off-balance sheet offering many advantages we cannot ignore the negative effects. It undermines the financial transparency of company financial statements. Therefore, financial transparency should prevail over the off balance sheet in every corporation in order to have “healthy” and high quality financial statements.
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 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
In the year 2002, Adelphia Communications Corporation faced a massive accounting scandal that led to company’s bankruptcy and later reorganization. This paper will attempt to identify, analyze and evaluate the consequences of misrepresentation of financial accounts on a company, industry and economic level. Moreover, it will attempt to examine factors influencing the corporate failure from an auditor’s point of view, and consider the measures that auditor could have taken in order to enable quality and completes of information communicated to external users.
Under the pressure brought by Mr. Wiles’ arbitrary management style, senior managers were just busy with making numbers, but not feasible plans. Such unreasonable management style resulted in the emergence of irresponsible behaviors. Besides, The Company emphasizes “make the number” instead of “make the accountable number”, which probably resulted fraudulent activities. The History department of MiniScribe’s accounting and public reporting function was directed not to question the number received from the Control, also called as the controllers for the company’s operating and manufacturing division. It’s so ironic that directors discouraged responsible employees’ responsible behaviors.
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.
There are two types of transparencies: Regulatory transparency which incorporates controls on regulatory discretion, counsel with invested individuals and advance procedures that are clear, unsurprising and reliable. Information transparency is the giving of precise and “timely statistical data” as well as convenient warning of continuous policy discussions. ("Critical perspectives on international business: Vol 5, No 3", 2016) It needs to be transparent on how it spends the publics tax money and how they conduct their business. In 2012 South Africa was positioned second out of an aggregate of 94 countries for the transparency of its financial plan, however, in the 2015 review, South Africa was positioned third. ("South Africa Overview", 2016) The public and the business community need to have regulatory and information transparency so they can understand and make a precise evaluation of their rights and commitments. However, the final objective of the public sector transparency needs to make government policies reasonable and unsurprising to diminish the instability and expenses of “conducting public and private business.” ("Critical perspectives on international business: Vol 5, No 3", 2016) Transparency in the Private sector is the extent to which organizations customarily reveal substantial information about their financial condition and bookkeeping practices to “outsiders and the government in a reliable manner.” ("Critical perspectives on international business: Vol 5, No 3", 2016) Valuable numeric reporting supports the general productivity of the business sector and has the long‐term impact of lessening the expense of capital for companies. Incorrect or conflicting numeric reports brings down the plausibility of the private sector and discourage foreign contribution and cross‐border
Ethics within any industry and organization is vital for its success. When those ethics have been compromised, it can be detrimental to the organization. Within the health care industry, it is vital they adhere to the ethical standards that have been established by the federal and state governments. For ethical standards to be followed, the health care executives are responsible to establishing policies and procedures. Understanding the financial aspects of the health care organization such as, where exactly does health care spending goes and how to reduce the inefficiencies and financial waste within the system is also important. This paper will address the financial reporting practices and ethics within
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.
Off-balance sheet accounting boils down to the simple question: should the sponsoring entity consolidate or not? From the 1980s to the 1990s it was common for sponsoring companies to avoid consolidations despite the fact that they maintained control of assets of special purpose entities (SPEs). Ultimately, this allowed sponsoring companies to hide losses and debt from their own financial statements. From a principles-based view, companies should have to report the assets of a SPE on their financial statements if the sponsoring company has maintained control of the assets, if the risk has not been transferred to the special purpose entities (SPE), and/ or the SPEs is not independent.
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.
U.S. GAAP and International Financial Reporting Standards (IFRS), formerly known as iGAAP, are two accounting standards used in today’s world of financial reporting. These standards have differences as well as similarities in reporting requirements. Organizations in the United States are required to follow GAAP principles in preparing financial statements and other financial reports. Whereas, organizations outside of the United States may follow IFRS. Balance sheet reporting and formatting is an area in which GAAP and IFRS may differ, yet be similar in many respects. The balance sheet is a financial statement of what a company owns and what it owes at a given date and time (Spiceland, Sepe, & Nelson, 2013). This paper will address differences and similarities in respect to balance sheet reporting and formatting as it relates to fixed assets and liabilities, inventory, and goodwill.
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 ...
This shows how a lack of transparency in reporting of financial statements leads to the destruction of a company. This all happened under the watchful eye of an auditor, Arthur Andersen. After this scandal, the Sarbanes-Oxley Act was changed to keep into account the role of the auditors and how they can help in preventing such
Balance sheets are very important for parties like suppliers, investors, competitors, customers, etc. to know the company’s position, company’s strength and company’s weaknesses. Balance sheets helps to ascertain the amount of capital employed in the business so that we can further calculate different types of ratios. Some important objectives of preparing balance sheets are:
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."