Accounting: An International Perspective - Assignment Example

?FINANCIAL REPORTING s Introduction Finance reporting is a collective term for social, political, and economic progress of an organization. As a result, the single-most effective technique for global development is the creation of a valuable financing reporting policies and ideologies. Finance reporting entails the complete preparation and presentation of organisations’ financial reports, which are useful in internal and external planning. The frequent users of financial reports are: government agencies, creditors, administrators, employee unions, entrepreneurs and investors. The involvement of the all stakeholders, the identification of the economic status, financial identification and effective transmission of the components of the financial reports outlines the main characteristics of effective and good quality financial reports (Helen and Gary 2001, P. 57). Although conventional financial statement systems are still effective in providing financial reports in an organisation, the adoption of contemporary financial reporting techniques and policies have proved to be more valuable and cost-effective. Organisations provide financial reports to facilitate the successful creation of practical regulatory policies and for procurement authorisation. To address the issues of finance reporting extensively, International Trade Organisations have developed various policies aimed at harmonising the global financial reporting process for the benefit of global economic development. One such initiative was the formation of International Accounting Standards (IAS 10) to harmonise accounting practices across the globe. The main aim of the IAS 10 policy framework was to prescribe the most effective timeframe for adjusting financial statements for an organisation and to enable the identification of necessary disclosure requirements regarding the date for financial statement authorisation and the events that followed the reporting period. The standard stipulates that, an organisation should not prepare financial reports based on going-concerns. The International Accounting Standards (IAS 10) offers an explanation of the events that occur after the finance reporting date. The standard is also exceptionally decisive in explaining various activities that occur instantaneously after reporting period. Definitions Events after the reporting period- This entails the inauspicious and constructive happenings that takes place after the end of the reporting date and before the date of authorisation of the financial statement. Adjusting Events These are events that offer comprehensive evidence to support the occurrences that take place at the end of the reporting date. Adjusting events also incorporates the events that relate to the inappropriateness of the going concerns assumption in the entire or part of the financial plan (Evans, 2000, p.535). Non-Adjusting Events These are events that reveal the conditions that occur after the termination of the reporting date and do not interfere with the organisation’s financial report. These events occur at the end of the reporting period. However, these events should not be allowed to inference with the absolute finance reporting. The Scope of the Provision This standard is only appropriate in the entire accounting process, at the disclosure and in the analysis of events that occurs after the reporting time. Objective of International Accounting Standard (IAS 10) This provision is aimed at prescribing the most appropriate time for adjusting financial statements for events that might take place after the reporting period. The provision also offers a description of the necessary disclosures regarding the financial statement authorisation and the impact of the events that take place after the reporting date to the organisation finance report. The provision is as well expected to ensure that no organisation prepares its financial reports on a going concern basis. This occurs in the scenario where, events after reporting time demonstrate the inappropriateness of the going concern postulation. The emergence and execution of International Accounting Standard has been a continuous process. The initiative was the manifestation of the International Accounting Standard Committee (IASC). The insurance of the Exposure Draft E10 Contingencies and Events Occurring after the Balance Sheet Date by International Accounting Standard Committee in July 1977 was the initial stage on the roadmap toward the creation of IAS 10. The IAS10 was introduced in the global accounting sector in October, 1978 and was expected to be effective by January 1, 1980. The revised IAS was issued in May 1999 to replace the preceding provision. The revised version was intended to supersede some portions of IAS 10 (1978) that addressed events that occurred after the balance sheet date. In December 18, 2003, the newly established International Accounting Standards Board (IASB) issued a revised IAS 10 version. The effective date for the new provisions was on January 1, 2005. There were also some changes to the IAS 10 provision that were executed on September 6, 2007. The International Accounting Standard Board replaced the title of IAS 10 from Events after the Reporting Period to the current title, Presentation of Financial Statement. International Accounting Standards (IAS 10) was the first international standard to be applicable in United Kingdom’s Accounting Standards. The IAS 10 was intended to replace the SSAP 17, which was an Accounting Standard for Post Balance Sheet Events. The main change brought about by IAS 10 over the SSAP was the elimination of dividends that were declared after the date of balance sheet. The IAS 10 proposed these changes to be included in the accounting notes. According to IAS 10, such dividends did not qualify for the actual description of the organisation’s liability. Additionally, according to the IAS 10 provisions, all dividends received from subsidiaries as well as associates at a date prior to the balance sheet date does not qualify for non-adjusting events. The IAS 10 also lacks exceptional provision to rely on prudence in the reclassification of non-adjusting events to adjusting events. Moreover, referring to the IAS 10, the events after reporting period should include the happenings that take place until the time when the entire financial statement is authorised for issue. These events must incorporate activities after public announcement and other selected financial information (Cairns 2004, p.107). In most cases, the procedure that takes place in the authorisation of the issuing of financial statement varies from one identity to another depending on the existing administration structure, the general process required in the preparation and finalisation of finance reporting as well as the statutory requirements in an entity. In other instances, the organisation managements are expected to provide a comprehensive financial report to the stakeholders for approval before issuing its financial statement. In this scenario, the financial statement authorisation is based on the date of issue but not on the stakeholders’ approval date. Moreover, the provision also offers some instances where entity management is expected to forward their financial report to a supervisory board for endorsement .According to the IAS 10 provisions, the supervisory board ought to be a composition of non-executive members (Lepadatu and Pirnau 2009, p.105). Adjusting Events Subsequent to Reporting Period According to the IAS 10, an organisation must adjust the resources acknowledged in the entire financial report to replicate the adjusting activities that took place after the reporting period. Some of the likely events that might occur after the reporting period may include the settlement of a court case that affirms the obligation of an organisation to include a specified item in the financial report after reporting period. In this case, the organisation should adjust its previous financial statement to incorporate the case ruling as provided for by IAS 10 requirement on the Provision, Contingent, Liability and Contingent Assets (Dillon 2001, p.28). The second event includes emerging information indicating that the impairment of an asset after the termination of the reporting period as well as the need for adjustment on the previous amount required in the replacement of a lost or impaired asset. A debtor’s bankruptcy occurring after the reporting date is another event that requires financial report adjustments. In this case, the organisation should adjust the trade receivable carrying amount. The net realisable value at the end of the reporting period can also be reflected after inventory sales that occur after the reporting date. The determination of the price of an asset purchased after the reporting period is also another scenario that warrants financial report adjustment (Branswijck, Longueville and Everaert, 2011, p.277). Another event that may lead to the adjustment of financial reports as provided for in the IAS 10 includes is the termination of the bonus payment and profit sharing procedure as well as identification of error and fraud that demonstrate the inappropriateness of the financial report. The non-adjusting events after reporting time The IAS 10 postulates changes in the amounts included in the financial statement or any update to the disclosure as indicated at the reporting date. In the situation where the non-adjusting event is in material terms, non-disclosure may to a great extent have a negative impact on the decisions made by an organisation’s management. As stipulated by the provision, the organisation management should disclose the nature of the events and the estimated financial effects on the entire material class of non-adjusting events. However, the non-adjusting events should be restricted from altering the amount in the financial report as well as the amount reflected in the income statement. If the event is of significant nature, the disclosure on financial statement should be made instantaneously to the stakeholders. Additionally, according to the IAS 10 provisions, it is illegal to adjust the non-adjusting events that emerge at the end of the reporting period (Chen, Gul and Su, 1999, p. 109). Going Concerns According to IAS 10 principles, it is inappropriate to prepare an organisation’s financial report on a going concern basis, especially after the termination of the reporting period. Any entity’s management that prepares financial reports on going concern basis should be subjected to legal procedure. It is also against the IAS 10 requirements to alter a financial report that aims at ceasing trading or liquidating the entity. Such decision should not be made after the end of the reporting date. In a situation where the going concern assumption is deemed irrelevant owing to non-adjusting events, the organisation management should present a financial report which is not based on going financial basis. The IAS 10 has as well offered a very comprehensive procedure for making such disclosures. The IAS 10 (2009) allowed for the adjustment of the financial statement if there is enough proof to demonstrate that the enterprise is no longer a going concern. However, this was later withdrawn in the revised version of IAS 10. Accounting for Dividends According to IAS 10 provisions, dividends that are declared after the reporting period but not later than the authorisation of the financial statements are not recognised as liabilities in the financial report. This is due to the fact that, these dividends do not meet the liabilities requirements as provided for in the IAS 10 provisions. As a result, dividend declared after reporting dates are considered to be non-adjusting events and are as a result disclosed in note forms (Ma and Lambert 1998, p. 153). IAS 10 Prescribed Disclosure Date of Approval/ Authorisation of Issue Organisations must disclose the specific time for financial authorisation as well as the authorising body. If the organisation’s stakeholders have the capability of altering financial reports, then the organisation must disclose the facts required in the adjustment. Disclosure Update on the Prevailing Condition at the Reporting Time An organisation should disclose all information relating to the existing condition at the termination of the reporting period. This helps in the reflection of new information received after the reporting period. Non-Adjusting Events Non-adjusting events should only be disclosed in a case where the event is of immense importance. Failure to disclose the event could complicate the evaluation and decision making process. The disclosure of non-adjusting events requires disclosure on the nature of events as well as the estimated financial impact of the event to the financial report. Views of other Accounting Standards There subsist considerable differences and similarities between the provisions in IAS 10 and provisions in other International Accounting Standards. The main differences between other regulations such as IAS 37 and IAS 10 entail the elimination of dividends declared after reporting time as adjusting events. Dividends declared after reporting time should not be considered as liabilities. As opposed to a good number of other International Accounting Standards, the IAS10 has created an exceptional provision for reclassifying non-adjusting events into adjusting events (James, 2001, P. 142). In general, the provision in the revised IAS 10 is almost similar to provisions in the previous international accounting standards except on dividends. The revised IAS 10 clarifies that, dividend declared after reporting time are not liabilities. However, the IAS10 (1999), recognises the dividends declared after reporting dates as liabilities. Additionally, the revised IAS 10 gives option for the disclosure and transfer of dividends declared after reporting date as organisation resources. On contrary, the IAS 10(1999) discloses dividends declared after balance sheet date as financial statement notes or separate components of equity. The revised IAS 10 states that, no reliability should be included in the finance report after reporting date even if the organisation has a reputation of paying dividends. This is due to the fact that, past experiences do not give constructive obligation for future development Conclusion The implementation of IAS 10 has in the last decade reported significant improvement in global financial reporting. The policy has reduced extensively rare financial and material errors that were perceptible in financial reports. The invention of IAS 10, lead to the creation of more opportunities for inventive and innovative accounting as well as organisation ability to bypass incoming statements. The policy completely transformed dividends declared after reporting period from ordinary liabilities to contingent liabilities. Additionally, IAS 10 standards also serve as a common denominator for the creation of other local and regional accounting standards. The effectiveness of IAS 10 has attracted its dependence from both private and public sector. However, frequent revisit and amendment of the policy is relative critical to ensure creation of timely and up-to-date policies that limes with the emerging alteration in global financial sector. References Branswijck, D., Longueville, S. and Everaert, P 2011, "The Financial Impact of the Proposed Amendments to IAS 17: Evidence from Belgium and the Netherlands", Accounting and Management Information Systems, 10, 2,275-294. Cairns, D 2004, "The implications of IAS/IFRS for UK companies", International Journal of Disclosure and Governance, vol. 1, no. 2, pp. 107-118 Chen, C., Gul, F.A and Su, X 1999, "A comparison of reported earnings under Chinese GAAP vs. IAS: Evidence from the Shanghai stock exchange", Accounting Horizons, vol. 13, no. 2, pp. 91-111. Dillon, A 2001, "IAs in search of an identity?", Bulletin of the American Society for Information Science and Technology, vol. 27, no. 5, pp. 28-28. Evans, T 2000, "IAS 2000, Interpretation and Application of International Accounting Standards 2000", Issues in Accounting Education, vol. 15, no. 3, pp. 535-536. Helen G and Gary M. 2001, “Accounting: An International Perspective”, New York. NY: The McGraw-Hill Companies James, K 2001, “Statement of Financial Accounting Standards”, Norwalk, Conn.: FASB. Lepadatu, G.V. & Pirnau, M 2009, "Transparency in Financial Statements (IAS/IFRS)", European Research Studies, vol. 12, no. 1, pp. 101-108. Ma, R. and Lambert, C 1998, "In praise of Occam's razor: A critique of the decomposition approach in IAS 32 to accounting for convertible debt", Accounting and Business Research, 28, 2, 145-153. Read More