Proposed Amendments: Improvement in Provision of Useful Information - Coursework Example

STUDENT NUMBER: MODULE NAME & NUMBER: WORD COUNT; TOTAL PAGE NUOMBER: REPORT ON THE PROPOSED AMMENDMENTS IN THE COMPANY’S FINANCIAL REPORTING PRACTICE BASED ONTHE ANALYSIS OF THE EXPOSURE DRAFT Introduction: An Exposure is a detailed report compiled by the International Financial Reporting Standards (IFRS) containing different recommendations by the general public with regard to the new accounting standards to be adopted. IFRS normally provides the general public with a document to be filled, citing their personal views with regard to different accounting practices that they believe should be emulated. Thereafter, they combine the different views from the public into a final draft which is then made available and easily from their official website (Thinggaard, Wagenhofer & Marton 2009). Having gone through the same Exposure Draft(ED 2014/1), I managed to highlight a number of practical issues based on the general public’s comments that would be essential in our Company’s well-being as well as in terms of remaining relevant in the competitive market (field.ifrs.org/Current-Projects/IASB-Projects/Amendments comment letter). Among the aspects of interest that I have discovered from the proposed amendments is how the general public’s views will be of great help to us in terms of being efficient in providing useful financial information to the public while releasing quarterly performance in the London Stock Exchange. The other area that this report is recommending is how to initiate some practices that will ensure simplicity is adhered to while reporting our financial performance to the general public in the stock market. Proposed Amendments: Improvement in Provision of Useful Information According to Ball (2006) the Proposed Amendments that will be essential in ensuring there is improvement in terms of providing useful information in the company’s financial reporting , for instance:- Materiality Concept In reference to this concept which states that the financial information is material to the financial statement to be reported if it is believed that it will influence a reasonable person’s opinion, IFRS is proposing to amend this particular accounting principle so as to take into consideration that: This concept’s ration is applicable to every entity’s reported income statement as well as other alternative comprehensive income reported, the balance sheet of the entity, the cash flow statements reported and likewise the statements acknowledging changes in shareholders’ equity (Epstein & Jermakowicz 2010). Whenever the entity or another relevant body requires to be provided with specific information, the information has to undergo scrutiny to establish whether it is material or not and thereafter whether the disclosure of such information is appropriate (Epstein & Jermakowicz 2010). The entities do not in any way aggregate or disaggregate information in their domain to an extend of doing away with relevant information In a move to ensure that the stakeholders get a comprehensive analysis of the company’s performance, we should amend our financial reporting structure so as to be in line with the IFRS proposal of: Introducing a requirement for an entity whenever we are reporting on the subtotals of some items in line with paragraphs 55 and 85 of International Accounting Standards (IAS) 1(field.ifrs.org/Current-Projects/IASB-Projects/Amendments comment letter). This will ensure shareholders and other stakeholders have adequate information regarding the company’s position since the sub-total reported shall:- Be consistent on a timely basis, for instance, when reporting the quarterly performance of the company in the London Stock market, the mode of reporting the sub total of shares sold in quarter 1 shall be the same with quarter reporting as well as quarter 3 and final year. Be presented and outlined in such a manner that whatever constitutes the sub-total of the items are properly articulated hence easily understandable to the receipts of the information. Be containing items that are easily recognizable and their measurement is in line with IFRS’ requirements In an ideal situation, whenever the shareholders have adequate information with regard to how a company performs, they tend to have faith in the organization and would easily increase their invested in the company, therefore, to make our esteemed customers continue trusting us and investing in the firm, we should ensure our company’s income statement captures all the essential line items that normally presents the following amounts during the accounting periods Revenue: The total sales that was realized during the period in question Finance costs: The costs incurred in the financial transactions that the company was involved in during the accounting period The incomes and losses realized in the events of disposal of the company’s fixed assets such as motor vehicles, premises, Land and other machineries The share of the income and losses in respect of associates and joint venture accounted for during the business period In a situation where a financial asset is reclassified hence being evaluated at fair value, any income or losses that is realized based on the difference between the initial equivalent amount of the financial asset and the fair value after its reclassification. Tax expenses: The total amount of money paid out to the Government and other relevant bodies as taxes Proposed Amendment: Improvement in the Understanding and relevance of the company’s financial statements for the users as well as reduction of Complexity In addition to the provision of the useful information, Schipper (2003) states that the proposed amendment by the IFSB is also essential in ensuring that the information reported is easily understandable by the users. As proposed by IASB in the amendments, the following issues ought to be taken into consideration in order to reduce the complexity of the financial reporting:- The IASB notes that some misconceptions normally arise because of the many wording that is often used by entities while specifying their presentation or disclosing requirements in IFRS, for instance, use of the words such as ‘as a minimum.’ Therefore, IASB has already amended paragraph 54 of the IAS 1 by removing the phrase ‘as a minimum.’ This is believed will make the reported financial statement simple and consistent with the corresponding requirements of the income statement in paragraph 82 of the IAS 1. IASB has also confirmed that many similar wordings as well as other misconceptions still exist in the other IFRS and thus shall be reviewed and amended accordingly (Schipper 2003). IASB also noted that the definition of ‘material’ as indicated in paragraph 7 of the IAS 1 tend to discuss the omissions as well as misstatements of some items which could individually or collectively influence the economic decisions . The IASB thereafter went ahead and amended paragraph 31 of IAS to articulate that an entity or an organization does not have to provide specific disclosure in the event that the information provided by the disclosure is regarded as immaterial either independently or collectively. According to IASB’s view, the definition of the word ‘material’ has already taken into consideration the aspect of individual as well as collective assessment and therefore reference to material is sufficient(Epstein & Jermakowicz 2010). On the other hand, IASB proposes to amend a sub section in the IAS 1 to emphasize that providing too much information that is immaterial may distort the meaning of the useful information in the reported financial statement that is, overwhelming the useful information with complex immaterial information in the financial statement ends up making the useful information less visible and consequently less understandable. Although, IASB does not in any way propose to hinder entities from disclosing information they wish to share, it only proposes that such information should not result in the changing of the meaning of their reported results (Epstein & Jermakowicz 2010). Conclusion Based on the issues highlighted above as proposed by the IFRS for amendment, we should take into consideration some of these relevant issues such as making our financial reporting as simple and understandable as possible in order to have full attention of our stakeholders. This will work towards making the analysis of the company’s performance and position much easier hence appropriate actions to improve the company’s result can be arrived at accordingly. Bibliography Alfredson, K., Leo, K., Picker, P., Procter, P., Radford, J., & Wise, V. (2006). Applying international financial reporting standards. Ball, R. (2006). International Financial Reporting Standards (IFRS): pros and cons for investors. Accounting and business research, 36(sup1), 5-27. Epstein, B. J., & Jermakowicz, E. K. (2010). WILEY Interpretation and Application of International Financial Reporting Standards 2010. John Wiley & Sons. Global Reporting Initiative. (2009). Sustainability reporting guidelines: Exposure draft for public comment and pilot-testing. In Sustainable Measures: Evaluation and Reporting of Environmental and Social Performance (Vol. 440, No. 474, pp. 440-474). Greenleaf Publishing in association with GSE Research. http://www.ifrs.org/Current-Projects/IASB-Projects/Amendments-to-IAS-1/ED-March-2014/Pages/Comment-letters.aspx Schipper, K. (2003). Principles-based accounting standards. Accounting horizons, 17(1), 61-72. Thinggaard, F., Wagenhofer, A., Evans, L., Gebhardt, G., Hoogendoorn, M., Marton, J., ... & Peasnell, K. (2006). Performance reporting–the IASB's proposed formats of financial statements in the exposure draft of IAS 1. Accounting in Europe, 3(1), 35-63. Walton, P., Haller, A., & Raffournier, B. (2003). International accounting. Cengage Learning EMEA Read More