Comparative International Reporting - Essay Example

? Comparative International Reporting (Accounting) Introduction: Financial ments or financial reports are formal records of the financial activities of business, person or other type of entities. A financial statement is usually referred as an account. For all business enterprise, financial report preparation is mandatory. It is prepared in a structured manner and includes balance sheet, income statement or profit and loss account, statement of retained earnings and the statement of cash flows. The main objective of the financial reports is to provide information regarding financial position, performance, as well as changes in financial position of a business to a wide range of users in making economic decisions. Financial reports should be understandable, relevant, comparable and reliable (New Zealand International Financial Reporting Standards.2008). Financial reporting as said earlier is mandatory in all countries irrespective of laws prevailing. Accounting reports are prepared according to laws or standards framed for this purpose. In New Zealand the Financial reporting standards board or the FRSB is responsible for developing, implementing and ensuring accounting standards in the country (New Zealand Equivalents to International Financial Reporting Standards. 2011). The FRSB forwards new accounting standards to the Accounting Standards Review board or the ASRB for approval. It also works along with the International accounting standards board. In New Zealand issuers of securities and large profit making reporting entities are required to fully comply with the international financial reporting standards. According to the financial reporting act of 1993, reporting entities includes business which issues securities under the securities act and companies and other entities whose legislation requires them to comply with the act of 1993. The financial reporting act of 1993, places obligations to all such organizations to prepare financial statements in compliance with the generally accepted accounting practice within five months of their financial year. Smaller companies except issuers of securities and overseas companies can comply with less stringent requirements up to the limit of justification on their costs. It is also mandatory for companies to audit their financial statements and to file them with the registrar of companies in the public register. Meanwhile small overseas companies are exempted from this condition. The 1993 act has established the ASRB with the prime purpose to approve financial reporting standards. The Institute of chartered accountants of New Zealand, a professional body is responsible for developing and submitting financial reporting standards to the board (Financial reporting law. 2010). Since the introduction of New Zealand eqvallent to the IFRS, all the entities have to work through ever changing and more complex requirements of reporting. These challenges have reached the point of height when the entities are required to prepare and submit their annual report to share holders and other stake holders. With regard to presentation of the income statement, the companies have two options. The financial statements are approved for the purpose of issue within a period for 65 days average for listed entities and 100 days for non listed entities. Financial statements make up nearly 60% of the annual report. According to NZ IAS 1 , a minimum and separate disclosure on the face of the income statement of revenue, finance costs, profit and loss share of associates and joint ventures accounted for using equity method, profit or loss and tax expenses. Even though there is no specific requirement to show operating expense on the statements, the NZ IAS1 gives a choice for companies to select presentation of services by function or by nature. The NZ IAS1 also requires inclusion of primary statements that show changes in equity. This can be due to changes arising other than from transactions with equity shareholders acting in their capacity and all changes in equity or SOCIE. With regard to reserve, the rule says that a description of the nature and purpose of the reserve within equity should be provided. The revised NZ IAS1 has reverted from names of statements that were previously used in NZ GAAP. Now statements are named as statement of financial performance, statement of financial position, and statement of cash flows. The entities are not required to change the terminology. Disclosure of income tax as well as reclassification adjustments that are related to items of other comprehensive incomes is required. Items of other types of comprehensive income can be presented net of tax or with gross where tax is shown separately. If the tax is not presented in the statement, it has to be presented in notes. Moreover now the preparation of statement of changes in equity is mandatory. A summary of accounting policies that are followed as well as other explanatory notes is a required component in the set of financial statements. NZ IAS 19 includes rules related to employee benefits where the entities are required to disclose benefits for short term employees along with other provisions (Focus on financial reporting in practice. 2010). Since August 1990, the accounting standards in UK are issued by the Accounting standards board. All accounting standards issued by the ASB are known as financial reporting standards. They include financial reporting standards for smaller entities and financial reporting exposure drafts (Knowledge guide to UK Accounting Standards. 2011). There are many significant changes in UK accounting standards which is primarily based on GAAP when compared to NZ IFRS. The FRS of UK specifies that only realized profits may be taken into profit and loss account unless there are specific reasons for a departure from the above principle. When there is departure, the reason for departure has to be mentioned. FRS 5(31) says that where a transaction in the recognition of assets and liabilities, whose nature is totally different from that of the items that are normally included, such differences should be explained. More over if a company have material risks and arrangements as a result of arrangements which are not reflected in the balance sheet, disclosure of information about the nature and business purpose of such type of arrangements and its financial impact should be made.s417 (10) says that no disclosures are required by the company if the disclosure would seriously prejudicial to the interests of the company in the course of negotiation. With regard to fixed assets, the difference between market value and book value should be disclosed where it is substantial. This is for certain type of fixed assets like land. FRS 21 also requires that certain post balance sheet events should be disclosed in a note to the financial reports. FRS of UK also establishes that if money given for charity purposes exceeds 2000 pounds, it should be disclosed and the purpose and amount should be specified. It is also required to disclose when the shares of a company are acquired through forfeiture or surrender, the number and nominal value along with called up amount of the shares should be disclosed. Another important disclosure to be made by companies is the details regarding disabled employees. If the company have more than 250 employees, details of employees have to be disclosed. S404(1)(b) specifies that group financial statement must include a consolidated profit and loss account that deals with the profit and loss of the parent company and its subsidiaries. The profit and loss account should comply with the prescribed formats. The amounts in respect of assets and income should not be set off against amounts in respect of items representing liabilities and expenditure. Turnover should be shown net of VAT and trade discounts as well as any other taxes that are based on turnover. FRS 3(28) gives direction to present a reconciliation of opening and closing shareholders funds. Comparatives are required. It can be presented either as a primary statement or as a note to the financial statements (UK GAPP illustrative financial statements.2010). There are much more differences between UK GAAP and NZ IFRS prominent among them is that under the UK standard dividends are recognized in the profit and loss account in the period to which they are related but under IFRS they are recognized as liability and a deduction from equity in the period in which they have been declared and approved by the company general meeting. Under the UK GAAP all capitalized software development and website development costs are included in tangible fixed assets whereas in IFRS if the costs are not an integral part of the software, they are treated as intangible assets (Principal differences between UK GAAP and IFRS. 2009). With reference to the financial report of ANZ bank having its registered office in Melbourne Australia and having branches in New Zealand, an analysis of its reports prepared under tie NZ IFRS will be giving confusions when compared with UK GAAP standards. As mentioned earlier differences occur in many fields. To name a few one major difference is in the area of dividend where the NZ IFRS states that they are a liability but in UK GAAP it is an appropriation of profit. Changes also can be seen in the amortization of goodwill. Moreover with regard to some fixed assets like land the difference in market value and book valued has to be disclosed under the UK GAAP but they are not required under the NZ IFRS. Another notable difference that requires attention is in the area of valuation of stock and long term contracts. Under the UK GAAP, stocks are permitted to be valued under LIFO or last in first out method. However NZIFRS standards don’t permit such type of stock valuation. With regard to cash flow statements, UK GAAP allows preparation of cash flow statements under eight headings namely operating activities, returns on investments, servicing of finance etc. but NZIFRS permits under three headings only. They are operating activities, investing activities and financing activities (Your ANZ your world. 2010. p35-37-38-43-45-64-90). Conclusion: It is true that there are differences between UK GAAP and NZ IFRS. The differences create inconveniences in comparisons for investors and other stake holders. To reduce the differences, it is inevitable to follow a common standard all around the world .The first step in this direction is the adaptability to IFRS by all major companies around the world and the phasing out of the traditional GAAP. This would help in interesting and fruitful comparisons as well as reduce unnecessary legal and practical difficulties for companies and investors. Reference: Financial reporting law. (2010). (online). Available:http://www.nzdmo.govt.nz/publications/nzefo/2010/23.htm (Accessed 14 January 2011) Focus on financial reporting in practice. (2010). (online). Available:http://www.deloitte.com/assets/Dcom-NewZealand/Local%20Assets/Documents/Financial%20Reporting%20Survey/nz_en_FinancialReportingSurvey_Seriesissue1_062010.pdf (Accessed 14 January 2011) Knowledge guide to UK Accounting Standards. (2011). (online). Available:http://www.icaew.com/index.cfm/route/156255/icaew_ga/en/Technical_and_Business_Topics/Guides_and_publications/Knowledge_guides/em_UK_Accounting_Standards_em (Accessed 14 January 2011) New Zealand Equivalents to International Financial Reporting Standards. (2011). (online). Available:http://www.pwc.com/nz/en/ifrs (Accessed 14 January 2011) New Zealand International Financial Reporting Standards.(2008). (online). Available:http://www.treasury.govt.nz/publications/guidance/reporting/nzifrs. (Accessed 14 January 2011) Principal differences between UK GAAP and IFRS. (2009). (online). Available:http://production.investis.com/jessops/reports/ifrs_jessops/differences.pdf (Accessed 14 January 2011) UK GAPP illustrative financial statements.(2010). (online). Available: http://www.ey.com/Publication/vwLUAssets/UK_GAAP_Illustrative_Financial_Statements_2009/$FILE/EY_UK_GAAP_Illustrative_Financial_Statements_2009.pdf (Accessed 14 January 2011) Your ANZ your world. (2010). (online). Available:http://media.corporate-ir.net/media_files/irol/96/96910/agm2010/2101%20Annual%20Report.pdf (Accessed 14 January 2011) Read More