Advanced Corporate Reporting - Essay Example

Advanced Corporate Reporting Prepared by Submitted to Word count 2699 Assessment of application of International Accounting Standards 1.1 Effect of IFRS on the companies and economy: All listed companies have published the consolidated financial statements in accordance with IFRS. Even some non listing companies also have applied for IFRS. At the time of further implementation of IFRS in 2007, the assessment of the previous implementation is judicious. This is in particular for the companies that issue public bonds on a regulated European market. These accounting standards have shown a significant impact on the potential influence on the behaviour of economic agents. Accounting standards caused the financial institutions to behave in a certain way that enhances the financial stability in the long run. (European Central Bank, 2006) 1.2 Arguments of European Commission/ Union on IFRS: It was opined by analysts that the core of the financial mismanagement lies within the commission and due to the fact that structure is opaque. The problems of financial mismanagement are the basic enforcements weaknesses. The court of auditors of European union admitted that the 80 percent of taxpayers money was never accounted properly. The responsibility for combating fraud has been considered by European commission. It was observed that the EU's financial regulation 2342/2002, article 87(4) claims that there I no need to attempt the recovery of any sum less than million euros and this has been ruthlessly exploited. By eliminating the loop hole, the European commission resulted in shared responsibility instead of separation of the responsibilities. As the improvement is not possible if each EU institution or department works with different standards and criteria, the common standards for the accounting were considered. Due to the erroneous accounting the debtors of European commission simply disappeared in 2002-03. This is due to the chance of amending the unspecified provisions on the balance sheet. The pension liabilities in the balance sheet generally distorted accounts. The lack of security controls over accounting systems and records there is no way for the auditors to trace the changes made to the records. According to the Marta Andreasen the structure enabled the officials to use the system for their own purposes and IFRS implementation eliminated it. Another problem with the old system is potential mismanagement of cash due to lack of principles in cash flow analysis. The maintenance of huge cash suggests the deliberate retention of member states and companies surpluses against EU rules, the establishment of own resources by the tax payers money. These huge funds are used to maximize the public funds. This should be avoided as the cash in hand by any company should be reported and the use of it can be restricted. To avoid these issues, the credit rating of the companies should be true and fair and must be based on accounting statements. This should be regulated by EU. The implementation of IFRS auditing on EU and the companies in the EU states resulted in overcoming the problems regarding the financial mismanagement and misuse of cash. The action on fundamentals and injection of commercial reality was made possible by the introduction of IFRS. The commercial organizations will ask themselves the questions regarding their performance and they should be reflected in the financial statements. The IFRS made it possible and the transparency has been resulted in the use of the money of the investors. This needs a creation of financial infrastructure and that was taken by the lesson from New Zealand that will audit fully singed annual accounts within three months. The auditors were made independent in assessing and auditing the company's financial statements and strict guidelines have been imposed according to IFRS. This made possible good financial management in the company's possible and gave the required security for investor's money in the company. This gave chance to investor to estimate the performance of the company and to decide on investing in it. 1.3 Non convergence of US and EU to IFRS: When the provision of comparable financial statements is considered, it is widely accepted that the harmonised accounting framework creates a level playing field. On april 21, 2005, the SEC chairman William Donaldson in a meeting with EU internal market commissioner charle Mc creevy has reaffirmed his support to convergence to IASB. The US removed the restriction on SEC registrants to submit the statements according to US GAAP. This has addressed the ongoing SEC staff evaluation of solutions. The significant barriers to SEC deregistration by non US SEC registrants are also removed. There is no proposed rile making on any of the items mentioned above by US. The removal of restriction will enable the SEC registered companies to submit the accounts according to IFRS standards. Then the companies under the registration of SEC can trade under EU stock exchanges. The non convergence of the EU and US has been minimised by the removal of the restriction of US on the US SEC registered companies to submit the financial statements according to US GAAP. Financial markets often rely on the relativity than the straight pricing. This comparability has been enhanced by applying the same accounted treatment to the same or highly similar operations from financial perspective. The new international standards provided accurate representation when compared to the situation before implementing. This is due to the environment in which the market decisions focussed on accounting rations. (. European Central Bank, 2006) Part 2 Executive Summary Objective of IFRS1: The IFRS has to ensure the entity's first IFRS financial statements, and their financial reports. This will be a part of the period covered by those financial statements. These statements should have high quality information regarding transparency, suitable starting point for accounting, generation at a low cost, not exceeding in such a way to bring a loss to the benefits of the users. The first financial statements of an organisation are the ones that are released after adopting the IFRS. This is by explicit and unreserved statement in those financial statements of compliance with international financial reporting statements. The company have to prepare an opening balance sheet according to IFRS. This should be done at the date of transition to IFRS. This can be termed as starting point for the accounting under IFRS. Though this is an opening, the company need not present this opeining in the first financial statements under IFRS. This requires an entity to comply with IFRS effective reporting date for its first financial statements. This enables to identify the assets and liabilities that require recognition of IFRS. The assets and liabilities can be non-recognised if the IFRS do not permit the recognition. The reclassification of items recognised under GAAP as assets and liabilities is necessary under IFRS. This will compel the applying the IFRS in measuring all recognised assets and liabilities. The IFRS allow limited exemptions from these requirements. There are in specified areas of cost of complying and there is likeliness to exceed the benefits to users of financial statements. To avoid this the IFRS prohibits, retrospective application of IFRS in some areas that require judgments by management about past conditions. There is the need of disclosures that how the transition from GAAP to IFRS took place. (. IASB, 2006) General recognition and measurement Principles: It was mentioned that at the time of transition that is on 1 January 2004, the company should present one-year comparative figures and reporting at 31 December 2005. The company should prepare the opening balance sheet as the starting point under IFRS. It is needed for the equity reconciliation of the entity's first IFRS financial statements. IFRS compels the fist time adopter to use the accounting polices in the opening balance sheet and the following statements. Complying to each IFRS effective is needed for this and the retrospective application of other IFRS allowed by IFRS1. That is IFRS1 requires full retrospective application of the standards in force at an entity's reporting date. This prevents the first time adopter to apply the previous versions of standards that were effective at earlier dates. The users of IFRS1 should be aware that the dependence depending on the date of reporting there may not be an option to choose the version of a particular standard of IFRS. This is to avoid the entities from applying the superseded IFRS. Apart from the exceptions given below the company need to prepare the opening IFRS balance sheet. It has to recognise all the assets and liabilities whose recognition is required by IFRS. If property plant and equipment revaluation model in first IFRS statements recognised the difference between cost and the revalued amount of property in a revaluation reserve. The transitional provisions in other IFRS will apply to entities that already report under IFRS. If the company is the first time adopter, the requirements will override the transitional provisions in other IFRS modes. There are some exceptions relating to insurance contracts and assets classified as held for sale and discontinued operations. Presentation and disclosure requirement: The IFRS1 will ease the transition to the new standards globally. This will specify the many listed companies in EU. They have to present consolidated accounts in accordance with IFRS from 2005.The aim is to ensure the entity's first IFRS statements contain high quality information that is comparable over time. It will ensure that the statements according to IFRS will give a suitable starting point for accounting under IFRS. This will give the information contained in the financial statements at a cost that does not exceed the benefits of the users of the statements. Part 3 Impact of IFRS on 4Imprint group Plc The total sales increased this year are separately mentioned and if this is decreases also need to be mentioned. There will be a positive impact if there is increase in sales and negative impact if a decrease is recorded. The compulsion of this reporting will gives the information about the marketing capability of the company. The company reported the increase of web catalogue based us direct marketing business thus making users to know about the marketing strategies that require low budget. The compulsion of the company to mention the sales increase according to the categories helps the investors and economists to be aware about the nature of the increase in sales. By making the users know about the profit before and after exceptional items, the rise or fall of exceptional items can be made known to the investor. It was reported about the cash the company is having in hand. The company that is having more than necessary cash in hand may fail to convert assets into investments or returns. The investor or user can know about this issue due to the reporting of the available cash at the end of the year by the company. As the 50 percent of the cash is generated by activities, the maintenance of the cash by the company at the end of 2005 cannot be considered as the high liquidity. The reporting of cash and the ways it has come to the company will enable the investor or user to know about the cash flow of the company in positive or negative modes. As 5.26 million GBP of cash has been generated by sale of adventures in Advertising Corporation, the utility of this cash in the next year need to be observed. The proposed increase of dividend per share is 28 percent than the prior year. As the profits of the previous year also reported, there is a need to be verify whether the profits also increased in that proportion. The earnings per share is 30.94 in 2005. When compared to 2004, it I a 35 percent increase. 28 percent of dividend resulted in increase of 35 percent of earnings per share. This means the number of shares receiving the dividend has been decreased due to the purchase of them by the company. This results in more dividends for the remaining share holders. As the revenue from the sales in the previous and present year were given it can be compared to the increase of profits by the user. As there is increase of sales revenues around 9 percent, it was observed that there is 25 percent increase in profit. This indicates the reduction of operational expenses and increase in cost effectiveness of the company. If the increase in profit percentage is less than the increase of percentage of sales, it can be termed that the operational expenses are increases. Yet times, the increase in taxation also may cause the reduction in the profit. To make the user and investor to understand this aspect, profit before and after tax has been reported. It can be noted that the profit before tax increased by more than 50 percent but the profit after tax increased only by 25 percent. Still this is more than the increase of percentage of revenue from sales. This indicates the reduction of operational costs and enhancement of cost effectiveness. If this process happened in the opposite way the investor can estimate the negative performance of the company in the same way. There has been increase of exceptional charges of income from 512 million GBP to 2152 million GBP. As 0.44 million GBP related to the further reorganization of the European premium promotions division, the increase can be termed as productive for the future. Though the costs are not productive, the company needs to be report it and the investor can estimate the non productivity of the costs. The integration of the above division into the European direct marketing and corporate programs will result in decrease of operational costs in the coming year. In this manner the decrease or increase of the operational costs can be estimated by the user by the reporting of exceptional costs of the present and previous years. Due to the decrease of good will amortization, the operating profit increased and this resulted in increase of dividend per share and earnings per share. This is according to the adoption of international financial reporting standards by the company and this resulted in the share holders' benefit. The net assets of the company have decreased almost by 50 percent due to the adopting of IFRS in 2005. This gives correct assessment of assets of the company by the investor. It may also result in the increase of ratio of returns to assets. As the assets decreased, there is a chance of misperception by the investor that the assets are used more efficiently to create or increase returns. As the IAS19 recognition of pension liability, Write off of UK GAAP pension prepayment, Write back of goodwill amortization, Write off of deferred charges, which do not meet the IFRS definition of an asset are removed from the assets list of GAAP while the company adopted the IFRS regulations. So the investor should not compare the returns to assets ration of the previous year to the year the IFRS adopted. The comparison can be done from the year of adoption of the IFRS regulation to the following years. The IAS 19 holiday pay accrual, Tax on IFRS adjustments, Dividend recognition are also removed from the list of assets and this decreases the amount represented by net assets. The sales of the company are given division wise and the areas of the increase and decrease of sales can be known by the user easily. This gives complete information of weaknesses and strengths of the company in the marketing and withstanding the competition. Conclusion It can be concluded that the compliance of IFRS by the companies will make the transactions of them transparent. The compulsion of informing the balance as opening while adopting to IFRS from GAAP can avoid any frauds or misuse of information. The companies' assets are correctly estimated by IFRS and the assets calculated under IFRS and GAAP will be different as evident from the annual report of 4imprint. The understanding of the investor can be enhanced by the regulations followed under the IFRS accounting. The compliance to IFRS will ease the transition to the new standards according to the need when any changes in the accounting principles are needed due to the growth of the economy. The comparative figures presented by the company will enable the user or investor to estimate the company's performance in the time being. References 1. 4 imprint group, 2006, 4imprint group, ,electronic, 28-5-07, till page 15. 2. European Central Bank, 2006, ASSESSMENT OF ACCOUNTING STANDARDS FROM A FINANCIAL STABILITY PERSPECTIVE, European Central Bank, ,electronic, 28-5-07, http://www.ecb.int/pub/pdf/other/assessmentaccountingstandards2006en.pdf 3. IASB, 2006, technical summary, IASB, ,electronic, 28-5-07, http://www.iasb.org/NR/rdonlyres/BC2EBD78-5D97-4B72-8BFD-B08E9131A59A/0/IFRS1.pdf 4. Amit Majmudar etal, 2002, IFRS 1 - FIRST-TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS, M/S KA pandit, ,electrnic, 28-5-07, http://www.kapandit.com/ifrs-%20amit%20majmudar.pdf 5. Ashley Mote, 2005, minutes of European Commission, Select committee on European Union, ,electronic, 1-6-07, http://www.publications.parliament.uk/pa/ld200506/ldselect/ldeucom/270/6061302.htm 6. Paul/weiss, 2005, SEC Chairman Addresses IFRS-US GAAP Convergence, Paul/weiss.com, ,electronic, 1-6-07, http://www.paulweiss.com/files/Publication/d596eabf-8fd3-4cbb-acd3-4052749fbd74/Presentation/PublicationAttachment/f6a806a6-e2d5-4807-ae1e-48001c4379e4/10006_1.pdf Read More