The Nature of Financial Information Analysis - Research Paper Example

Financial information analysis Introduction The paper will concentrate on the nature of financial information analysis and its role in business enterprises and other markets, the needs of users accounting information and; financial information analysis as a tool to decision-making. Financial information is one of the most powerful sources of weight and Authority in any business society (ALEXANDER, et al, 2007). This is particularly in environments where accounting is documented as a prime means of communicating and controlling the operations of an enterprise. In the business world Entrepreneurs have to deal with complex financial information environmental volatility as a base of operation. Discussion Financial Information Analysis reflects the developments by addressing the natural world and function of accounting information in the past and present society, with specific reference to technological change. The increasing focuses particularly primary accounting documents, analysis, presentation, and Annual Reporting which propels it to the justifiable level. The main aim apparently is to endow users with the skills required to fathom the information content relevant and other accounting relate materials. These functions facilitate corporate governance on creative accounting, the relevant pronouncement in regulatory structures that have been rewritten to add in new insight, and emphasis. Information analysis is an art which is highly subjective exercise where skills, experience and intuition of users account very critical factor of consideration (KOEN, & OBERHOLSTER, 1999). The core mandate of accounting reporting therefore is to gather information about an organizations strategy, its operations, and future prospects in relation to commercial, environmental and social context. This is meant to be an organizations most important reporting tool addressing how the business activities are trading and to which extent is the state of affairs in regard to the financial position. In other wards the following performance areas of concern are addressed; what is financial efficiency, liquidity and its gearing status as well as the expectation of the shareholder in return to their money invested. Its pertinent aim is to create a formula for accounting for sustainability, bringing together governance, social, environmental and finance in a cohesive way. Financial information need to achieve financial development, sustainability and improved performance while reporting on their overall performance. In fact, it exposed some businesses to their bare minimum since companies are able to reveal most of their financial details while yet they did not achieve better performance that they expected. This therefore necessitated the need for a new framework for critical analysis in reporting that would boost their performance through better modalities of information review. The process of creating an integrated management information system has been faced with a number of setbacks. This has been brought about by a number of challenges such as the existences of different rules and regulations governing the various jurisdictions in the international society. Therefore for a report to be standardized there is a need for such report or rules in reporting to be applied across the boards (PETERSON, & FABOZZI, 2012). This has been a problem because the international communities have a different set of laws that govern them and as such some reporting guidelines may not be acceptable to extents within a given jurisdictions. This greatly affects the process of creating an integral report since the committee has to compromise or look for alternative ideas or methods that can be generally accepted across the boards and one that is all inclusive. It may also mean that some jurisdictions may have to be guided by a different guideline on international reporting requirements (SMULLEN, 1995). Since the idea of financial information analysis was relatively new, it goes without saying that it would require more time to gain knowledge and experience to ensure the success of the framework in the long term. Some aspects in the analysis have to be tried out and tested in order to know their viability. The more knowledge is gathered regarding the disclosure requirement the successful it would be for company’s prosperity. In essence, experience is the best teacher and as such the financial information analysis has to be tried and tested to be more successful. The financial reporting requirement would encompass more subjects and have a strategic focus. As such, concerns on fiduciary roles and business confidentiality would need to be tackled in order to avoid future conflicts. Measures needed to be put in place to help deal with such a situation in the event that it occurs. The necessary tools needed to analyze these factors in an aggregated manner are still demanding due technological advancement with ratio analysis one the common methods to analyze the overall progress of the business. It is important remember that those analytical tools are however, one step of accounting procedures. Imperatively, the interpolations are more pertinent than the calculation of ratios in a financial context. The international integration committee therefore had the challenge to provide the necessary tools which will reveal relevant information to be reported while addressing such diverse topics. Since the Financial information reporting involves integrating different segments of coverage the organizations will be face with the challenge of setting up systems or improving on the available structures for netting and amassing information. Such structures may be costly to these organizations and may also take more time to set up. This will therefore slow down the advancement of formulating and implementing the analysis required in corporate performance. There is also the challenge of business secrets and confidentiality among the different industry settings. Organizations are faced with the problems of disclosing confidential information which may hurt the performance of their business or reveal too much information to the benefit of their competitors. The level of confidentiality needed to be addressed by providing a framework that would guide what information needs to be reported on that would not jeopardize the performance and growth such affected companies (GASTINEAU, & KRITZMAN, 1999) Such companies will also need to learn how to balance what information they need to give out and what they should not without losing out on the benefit of integrated reporting. The extension of the analyzed information is a problematic, though. This is altogether characterized by inadequet skills and knowledge relevant to dynamic business environment prevalent today. Accordingly, it my become impossible to identify and quantify the variables or finds the numeric values in setting the parameters to measure against the performance of operation. Therefore, the need to understand and use the analyzed information exists for few strategic business decisions critically forming part of daily management of an enterprise. Such situations require accurate and complete judgment of concepts. Apparently, judgment simply analyses brooded information into the capacity for rapid response through recognition and eliciting reactions in that regard. As was pointed out by OREGAN, (2006) “whether called wisdom, insight or six sense, intuitive help managers and other scholars to see things that others could not and incorporate factors which strict logical procedures still cannot handle”. The going concern assumption in general is based on the judgment and analytical review comparative ratios and trends of past performance. Consequently the entire users are able to know if the business will continue operation for definite period in the industry. In cases where this assumption is not applicable then the financial statement must disclose clearly with the view that the entity will be liquidated. In that regard traditional financial reporting analysis would not apply. This calls for misleading present figures in absence of going concern assumption. For instance, if under going concern assumption, insurance value prepaid is computed by spreading those cost over the insurance period. During liquidation the only cancellation policy value would be of sound. Generally Accepted Accounting Principles (GAAP) begins with a conceptual frame work that anchors financial reports to set materiality concept among other principles to which transactions are big enough to verifiably matters. However the impetus for change in practice of accounting needs for different business community have shown emergence of unique interests calling for harmonization of accounting standards. The main concern here is to provide the users and stakeholders with relevant, reliable and useful information for their economic decision influence. The occurrence and enormity of the material issues connected with the compilation of corporate financial statements should ring a bell to investors to exercise extreme caution in their application and interpretation of financial information (GIBSON, CHARLES H 2012). The report outlines a prerequisite for definite towering skills - knowledge of compliance, quantitative and mathematics skills, and actuarial together with risk management skill. These necessities are likely to persist and past research reports designates that there will also be a need for analyzers with expertise in derivative configuration. Good corporate reporting helps the international business community to forge a path to ensure success in their businesses and benefits their partners and stakeholders. Conclusion The need for creating a better framework for financial information analysis should be encouraged for the benefit of their organizations. The succinct financial reporting should therefore be aimed at consolidating the previous corporate reports into one document rather than creating a new one in addition to the older reports. The main beneficiaries of such information are the stakeholders who most often need results than unnecessary paper work. This means that they may need more relevant and useful insights. To achieve this, the financial information analysis will have to address the determination of value on what to analyze and to report on more in respect to the investors and stakeholders. References OREGAN, P. (2006). Financial information analysis. Chichester, Wiley. SMITH, J. M. (1965). Financial information conversion: analysis and evaluation. GIBSON, CHARLES H. (2012). Financial Reporting and Analysis + Thomsonone Printed Access Card. South-Western Pub. GASTINEAU, G. L., & KRITZMAN, M. P. (1999). The dictionary of financial risk management. [New Hope, PA], Frank J. Fabozzi Associates. SMULLEN, J. (1995). Financial management information and analysis for retail banks. Cambridge, Gresham Books. ALEXANDER, D., BRITTON, A., & JORISSEN, A. (2007). International financial reporting and analysis. London, Thomson Learning. KOEN, M., & OBERHOLSTER, J. G. I. (1999). Analysis and interpretation of financial statements. Kenwyn, Juta. PETERSON, P. P., & FABOZZI, F. J. (2012). Analysis of Financial Statements. Hoboken, John Wiley & Sons. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=948807. Read More