Corporate Reporting

Corporate Reporting

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nCritical Analysis

nIntroduction

n Many studies and researches have been invested into how and why corporate reporting is necessary to potential users. One of the most commonly asked question in any discussion is about the disclosure involved in corporate reporting .This paper therefore seeks to examine and answer these questions and at the same time analyze the objectives of Corporate reporting. It is of primary importance to give the definition of corporate reporting before, initiating the arguments HYPERLINK “http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=354318” o “View other papers by this author” t “_blank” (Abdulkareem, Khaled and Chew 2012, p. 4). A recent study by Duke Universitys Fuqua School of business defines corporate reporting as an essential activity allowing users to keep their operating data records including their income statements, balance sheets and statements of cash flows at the end of each month or year (Whittington 2008, p. 49). In other words, it is a very effective activity that enables all potential users to present their accounting statements more accurately and precisely. This paper also expands on current issues that arise as result of the laid down standards by Generally Accepted Accounting Practice in the UK, or UK GAAP and International Financial reporting Standards (IFRS) (White and Hanson 2009, p. 59). The IFRS gives room for flexibility as they are based on principles not rules. These principles enable corporations to adopt on the standards that best suit their position but with a condition of fair value reporting.

nReasons for usefulness of corporate reports to users

n The Financial Reporting Council issues accounting standards, which apply to all companies in the United Kingdom (UK) and other entities that prepare accounts to, provide true and fair view of the companies. According to Marquis (e How contributor), the report gives income statements used by financial analysts, investors, and corporate partners for the purpose of evaluating economic status and progress of the companies. Probably the chief reason why shareholders value corporate reports is that they illustrate financial status of a company including its profit gains and forecasts. In most cases, shareholders concentrate on the profit gains from which they shall be able to determine their share value and dividends (Charlotte 2006, p. 35). Corporate reporting also provides a platform through which a company attracts and retains investors. Consistent communication with investors on financial performance and company developments helps engage them in the business and boosts their confidence in it. Many investors look for evidences of proper management whenever they review the data from corporate reports. Besides investors, we have employees whose aim is to know that they are working for a progressive company, which shall offer them a secure future and great job opportunities (Zhang and Ying 2011, p. 5).

n Another important feature of these reports is a corporate equity statement which provides an insight on the ownership and management of a company. According to (Browlee II and Kenneth 2000, p. 79) corporate financial reporting is performed to help students understand financial accounting and reporting .This is more appropriate for those undertaking second financial accounting at MBA level. They also ensure that students analyze real financial statements as they work with the actual reports. Governments also use corporate reports to measure performance of their economy (Bayoud et al 2012, p. 98). In taxation of companies, governments rely on the financial reports prepared and examined by qualified experts because the trend on growth of a company is easily noticed. The corporate data from moneysuppermarket .com group provide online platform for comparison products in the market, insurance and home services. It helps users save money on all their household services as it provides a relaxed to use online service so they can compare a wide range of products that suits their needs (Villiers 2006, p. 11).

n Reasons Against usefulness of corporate reporting to users

n Despite the great achievements of International Accounting Standard Board (IASB) in extending financial reporting standards it has faced opposition from differences in national accounting cultures, which are concentrated in the market structures. The variation in national accounting cultures slightly affected users confidence on the information found in corporate reports (Whittington 2008, p. 76). Financial reporting fraud, including non-disclosure and deliberate falsification of figures has also contributed to information risk. This is very dangerous to shareholders and investors as they will believe that the company or business is economically healthy but it is not. Users should therefore be very keen on figures posted in the reports because some dishonest business persons who use false data to attract and retain investors. Schaltegger, Martin and Burritt 2006, p. 9). Results from surveys conducted shows that potential users consider annual reports to be the most important source of information .However, the level of disclosure in UK does not give sufficient details to users (Abdulkareem, Khaled and Chew 2012, p. 10). Only 61percent of their needs are detailed in the reports .This implies that users may not be fully satisfied with the information displayed in these reports. The users further stated that several area of concern such as delays on provision of the reports, lack of credibility of financial information. (Alzarouni et al 2012, p. 7) Multinational companies face challenges when preparing their harmonized financial reports especially where operations are in countries with different accounting standards. The variation in exchange rates , transfer rates and international rates in poses a great challenge since these aspects are considered differently in different countries (Brownlee, Ferris and Haskins 2008, p. 49). During the preparation of corporate reports in accordance with the laid down standards and with the expertise required a company has to engage highly qualified professionals for this task (Whittington 2008, p. 51). The amount charged for this task can be prohibiting to small entities, which are probably controlled by owner managers (Brownlee, Ferris and Haskins 2008, p. 54). If you compare large companies to medium or small ones, you realize that they do not poses adequate resources to implement the standard requirements or even to hire professionals. In most cases the small and medium sized companies, are forced to forgo compliance with certain aspects of the IFRS and FRC (Brownlee, Ferris and Haskins 2008, p. 13).

nConclusion

nDespite many criticisms leveled against corporate financial reporting, it is still standing out as a very important activity to all the users. Generally, the various companies, governments and other corporate partners view corporate financial report as a legal requirement. Secondly, they are presumed to provide a balanced overview of the results and financial position of a given company at the end of the year (White and Hanson 2009, p. 13). Finally it is also regarded as a mode of communication to stakeholders, investors and shareholders as it raises the key issues of a business and addresses on how management will deal with these issues.

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nReferences

nHYPERLINK “http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=354318” o “View other papers by this author” t “_blank” Abdulkareem ,A, HYPERLINK “http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=354318” o “View other papers by this author” t “_blank”Khaled , A ,and Chew Ng 2012 The Usefulness of Corporate Financial Reports: Evidence from the United Arab Emirates, Mohammad Iqbal Tahir ; January, 4, , ‘Accounting and Taxation, Vol. 3, No. 1, pp. 17-37, 2011.

nBayoud, Nagib, S, Kavanagh, Marie, and Slaughter, Geoff 2012, An empirical study of the relationship between corporate social responsibility disclosure and organizational performance: 69-82.

nBrownlee, E, R., Ferris, R, and Haskins, M 2008, Corporate financial reporting: text and cases Homewood, IL, BPI/Irwin.Schaltegger ,S, Bennett, M, and Burritt, R 2006, Sustainability accounting and reporting Dordrecht, Springer.

n Villiers, C 2006, Corporate Reporting and Company Law, Cambridge Studies in Corporate Law, Cambridge University Press.

nWhite, R., and Hanson, D 2009, Rationality and rhetoric in the corporate world: the corporate annual report as Aristotelian ‘genre, Launceston, Tas, University of Tasmania School of Management.

nWhittington, G 2008, Harmonisation or discord? The critical role of the IASB conceptual framework review, Journal of Accounting and Public Policy, 27, 495-502

nZhang, Y 2011, Accounting and Neoliberalism: A Critical Reading of IASB/FASB’s Conceptual Framework for Financial Reporting.