Ac7101 : Financial Reporting : Assessment Answers
Question:Â
Answer:
Disclosure problems with regard to financial reporting
There are numerous complaints regarding the overload of information with regard to financial reporting. Owing to this, it is eventually viewed that the disclosures for financial reporting shall be reformed. Particularly, there are 3 fundamental issues regarding disclosures of financial reporting that cannot be removed by any regulatory or market solution entirely. These issues are –
Materiality and relevance will always be subjective judgements. Further, there will be occasions while some of the users will not agree with the choice of the preparers regarding material. Therefore, relevant things required to be disclosed (Singleton-Green and Hodgkinson 2013).
Another issue is self-reporting bias. Generally the financial reporting is the manager’s product who reports on self-performance. Irrespective of the fact that majority of the managers are honest and their reporting approach is highly regulated, it is expected that it involves a level of biasness. Partly this will reflect as necessary level of managerial optimism regarding the continuing prospects and projects of the company (Singleton-Green and Hodgkinson 2013).
Apart from the above mentioned issues another major issue is self – inflicted potential damage. It will not be in company’s favour to remain 100 percent transparent. Few disclosures will provide valuable information to its competitors or to those who are in contract with the company. It will be disadvantageous to the company and its owners. Further, these types of information are proprietary in nature and the reduced gains or losses arising from these disclosures will be referred as proprietary costs (Ey.com 2018).
References:
Ey.com., 2018. [online] Available at: https://www.ey.com/Publication/vwLUAssets/EY-disclosure-effectiveness-what-companies-can-do-now/$FILE/EY-disclosure-effectiveness-what-companies-can-do-now.pdf [Accessed 8 Aug. 2018].
Singleton-Green, B. and Hodgkinson, R., 2013. Financial Reporting Disclosures: Market and Regulatory Failures. SSRN Electronic Journal, [online] p.08. Available at: https://www.icaew.com/-/media/corporate/files/technical/financial-reporting/information-for-better-markets/frd-final.ashx [Accessed 8 Aug. 2018].
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