Financial Reporting Disclosure Practices - Assignment Example

ACCOUNTING: A CRITIQUE OF AN ACADEMIC ARTICLE: FINANCIAL REPORTING DISCLOSURE PRACTICES PARTICULAR CASE OF FAIR VALUE MEASUREMENT By Code+ course name Instructor’s Name University Name City, State Date of Submission Accounting: A Critique Of An Academic Article: Financial Reporting Disclosure Practices Particular Case of Fair Value Measurement Introduction The aim of this academic article was to provide a critique on the topic based on the information from Reporting and Disclosure in the text, International Accounting seventh edition by Fredrick D.S. Choi and Gary K. Meek. The critiques were embedded on Financial Reporting Disclosure Practices Particular Case of Fair Value Measurement. Essentially, we provided and evaluated the validity of the arguments made in the article, relate the article to the content of the course work, discuss how the article challenges the viewpoint(s) expressed by the two authors, or how it otherwise contributes more generally to knowledge of the set topic. Discussion Originality or Value The financial reporting process involves a difficult relationship between the regulators, market and accounting. The International Accounting based standards emphasizes that financial reporting provide all useful information about the various financial entities potentially or already existing. This is because the investors, lenders and other stakeholders rely on such information to make decisions. Therefore, what should the financial information report or disclose to the stakeholders in order to meet the boards objectives. It should be noted that the term financial information touches on the qualitative and non-qualitative based information. However, in our view, the only key to sound corporate based governance and full financial information to the stakeholders although this may not be easy due to bureaucratic based management within organizations. Therefore, despite it being seen simple it is hard to achieve this objective. Research Purpose and Objectives The aim of this article based research was to investigate on whether firms and other financial organizations provides the necessary financial information to the stakeholders such as investors, creditors and lenders and as required by the IASB conceptual framework. Research Approach Essentially, the research on these critiques were conducted from secondary sources of information for example the chapter five on reporting and disclosure by Frederick and Gary in their text; International Accounting,7/e. Research Findings (Critiques of the article) The chapter five on reporting and disclosure requires all organizations to release all financial information through financial statements to the stakeholders. The stakeholders demand the information due to the nature of their roles in providing resources to the company. So why should organizations provide the information (Maria and Carmen 2013). Secondly, to what extend will they benefit from disseminating such information. Moreover, can the information disclosed or reported to the stakeholders be harmful. In our view, any organization releasing financial information to the stakeholders helps itself in becoming more competitive both locally and globally. In accordance to the policies, all companies are required to disclose their practices based on the fair value objective. The fair value based objectives have been controversially argued to be difficult in interpretation especially on the cases of the financial based crisis. The financial based sector has become more interested with the financial reporting because it reduces vices and poor based developments hence managers and the shareholders should ensure that the financial statements are released. The need to provide information is that, the shareholders cannot continue to enjoy the resources from the stakeholders without disclosing how the resources are utilized. However, most shareholders have failed because they do not offer such information as required by the chapter five on reporting and disclosure (Maria and Carmen 2013). A certain study that involved 20-selected public based traded companies from the financial based industry. The study aimed at checking on how companies behave in relation to the fair value principle and implicit based financial disclosure. Out of the 20 companies, 10 of them were selected from the London Stock Exchange Index while the others were from the Frankfurt stock exchange DAX and MDAX basedindices. After calculation of the disclosure index, and analysis of the time and space, we found out that disclosure based index have been increasing upward trend over the study based period. The report revealed that managers and shareholders collaborate to influence and manipulate the financial information such that fair value based disclosure is not attained. The shareholders will try to avoid conflict on earning per share from the lenders or government agencies hence the amount of earning may be reduced hence failure to report the correct figure. However, the disclosure differs from one country to another and in relation to the policies laid down. The UK based companies are said to be more effective in adhering to the fair value disclosure compared to the Germany based companies. The reporting disclosure exodus has been long. Essentially, the investors nowadays call for the managers to embrace voluntary disclosure. The voluntary information based disclosure must be timely and accurate so that the investors and lenders can make realistic budgets and other decisions on who to lend or where to invest (Maria and Carmen 2013).. However, the biggest challenge has been the managers who are busy in manipulating the information and avoiding re-aligning their incentives to those of the investors. Essentially, it has been found from the previous studies that disclosure based abiding companies help to create a strong party certification that eventually improves the capital market performance. The performance involves good relationship between the company and the stakeholders especially lenders in case of financial crisis. Failure to release the information to investors, and especially those in stock exchange amount to market abuse and misconduct. Therefore, the managers and their companies should be keen on providing such information. The presence of such information has been ben found to provide harmony, efficiency, fairness and order in the stock markets. In addition to that, poor fair value reporting amount to inaccurate future forecast and this can trigger legal based repercussions. The lenders and creditors may be given wrong information by the managers on fair prices of the product. This means that the revenues, income, capital expenditures and cash flow projections made are inaccurate hence poor decision making. The manager fails to know that wrong decisions made by lenders will have repercussion not only to the firm but also to themselves. This is because the lender may make wrong calculations on how much to lend because he or she was give the wrong fair value of the assets used as security. A critical critique of the article reveals that most of the managers and shareholders fail to put the investors and the lenders in fore front. This is in contrast to the international reporting standards that calls for the firms to ensure that all financial information get disseminated to the other stakeholders for own decision making. Although the research on the 20 firms revealed that disclosure index was high in UK and low in Germany, the sample size posed a limitation on the accuracy of the result. It reflects that if more companies will be used, it will be found that companies are trying to report the matter to the stakeholders although they face bureaucratic problem (Maria and Carmen 2013). Therefore, in our conclusion this article provides vital information based on the above findings that disclosure and reporting vary from one state to another. However, to get more realistic result, it is recommended that future studies on reporting and disclosure embrace databased spanning that embraces dynamic based financial reporting. This will help to expand our knowledge on how reporting and disclosure has grown over the past years. Reference List Maria, D. & Carmen, b. (2013) Financial Reporting Disclosure Practice: Particular Case of Fair Value Measurement, University of Economics Prague Publishers. Romania Read More