Business Performance, Non-Monetary Values - Essay Example

Business Performance Name Course Institution Date Table of Contents Business Performance 1 Table of Contents 2 Executive Summary 2 Introduction 3 Discussion 4 Non-Monetary Values 6 Recommendations 8 Conclusion 9 References 10 Executive Summary This report addresses the critical issue of non-monetary values as reflected on the financial statement. The report seeks to evaluate the various strategies through which the IASB through its conceptual framework forces entities to use monetary terms in reporting. The conceptual framework given by IASB indeed provides details on how to undertake certain accounting activities including recognition and measurement of assets. In addition, the report also analyses the various ways through which non-financial items are reported on the financial statements. At the end of it, the emphasis is on the regulatory bodies to make proper adjustments to ensure that non-monetary items can be easily reported. Introduction Financial reporting is a very important aspect of any organization. this aspect is at the heart of every stakeholder in an organization. it is a way of ensuring that financial performance of the organization is done with accuracy in order to close avenues for misappropriation. For this reason, regulatory bodies are tasked with coming up with policies and guidelines meant to enable accountants and related specialists prepare financial statements. Financial statements provide information that enables stakeholders to understand the money that was spent and how it was spent during that given financial period. It is of great significance to investors to gain confidence in the company through the information given by the financial statement. Nevertheless, these regulatory have been accused of various issues which critics believe have not been addressed appropriately. One of these issues is the inability of the given framework to adjust according to the dynamics presented in the operating environment. Policies and regulations ought to be flexible enough to allow adjusting to the changes arising all the time. In this report, the main focus is upon reporting in monetary form. The International Accounting Standards Board (IASB) which is tasked with setting the conceptual framework in some way leans towards reporting financial results in monetary terms. This report seeks to evaluate issues arising from reporting financial performance of a company in monetary terms. Discussion Theoretically, the conceptual framework provided by IASB is meant to improve financial reporting. Ultimately, organizations ought to prepare financial statements that will provide information to the users to enable them make informed decisions. Such could be the investors who are investing finances in the company. They require sufficient information to guide them in undertaking their investment decisions. In addition, government may demand information in respect with ensuring accountability is being adhered to in various government-sponsored corporations. In order to meet the objectives of general purpose accounting, the preparation and presentation of financial statements must be done in a way that communicates the relevant information effectively. It is important to note that inasmuch as these financial statements may not be simple in the sense that they can be understood by every user, they must relay the critical information appropriately. The conceptual framework guiding financial reporting as provided by IASB focuses on monetary terms as the means of reporting financial performance. It is quite clear that financial statements are designed mostly in monetary form to allow easy comparability. For instance, when analyzing the IASB conceptual framework in relation to measurement, it clearly indicates that the guideline requires measurement to be undertaken in monetary form. For instance, the framework provides three categories of measuring a transaction or asset. In this case, there is the cost-approach, the market value and the cash-flow based measurement. All these categories embrace monetary form as a medium of acknowledging a transaction in the organization. therefore, if assets and liabilities are measured in monetary terms, then it means they have to be carried forward in the financial books in the same form. This is because it is impossible to change the format after the transaction has already been entered. According to this conceptual framework, non-financial measurement is somehow not recognized. The framework considers non-financial measurement to be usable by non-business transactions. This clearly shows that the framework has limited the various measurements that are applicable in business transactions. The capital and capital maintenance treatment as provided in conceptual framework seems to emphasize on monetary terms for revaluation of assets. The revaluation of capital assets gives rise to either decrease or increase in equity. The process through which these capital assets are valued or revalued is undertaken in monetary terms. The revaluation process is considered more of a comparison of values of an asset at different times. From the manner in which revaluation process is tailored, it is clear that business entities are forced to report the transaction in monetary form. This is because only monetary values seem to provide what is considered realistic in the sense of comparing in order to ascertain whether there was an increase or decrease in relation to any financial transaction. Interestingly, what has been discussed under capital and capital maintenance is not just limited to capital assets. In fact, the recognition and measurement follows this route. Assets are measured in monetary form in order to allow comparability with other firms. The approach that has been instigated by the conceptual framework of IASB makes it almost impossible to imagine another way of reporting financial activities apart from monetary form. At this point, it is only reasonable for the regulatory bodies to be considerate of the need for flexibility in order to address all the emerging needs. This is very important in ensuring that the reporting of financial results in organizations does not uphold unnecessary rules that end up constraining the reporting process. Non-Monetary Values In financial reporting, the need to consider all relevant information is very important. The current business environment requires that the company reports on information relevant to its performance during the year that has been reported. In relation to non-monetary values on the financial statement, it is important to recognize them and point out their contribution towards the performance of the company. For this particular company, a number of items have been selected from the previous period’s financial reports that represent non-monetary values. The company recognizes these items since they consume the resources available. One of the non-monetary items is actually reduction in the number of dissatisfied customers. During the financial year, the number of customers who recorded dissatisfaction reduced tremendously. This is an indication that the quality of services has been improved greatly during the period in question. The decision by the company to invest more in the quality of services to customers seems to be paying off with these kind of outcomes. This in real sense points to increase in the value of the company. This is because when customers are satisfied, they exhibit positive purchasing trends. This implies that the overall sales are likely to increase because of this effect. Second, the company’s ability to attract highly talented personnel is yet another non-financial indicator of achievement during the period. This was coupled with the ability by the organization to maintain low turnover ratios. At the end of it, the ability of the company to attract highly talented people is a reflection of value addition. These employees are behind innovative ideas that the company requires to thrive in this competitive environment. As a matter of fact, the benefits of attracting highly gifted individuals are quite diverse and numerous. They are part of the ingredients that build the brand of the company. In addition, low turnover implies savings on the part of the company. This is because in the current environment, companies are spending huge sums of money to train and develop workforce in order to enable them deliver optimally. This can be quite expensive on the part of the company in the circumstance where it cannot hold on to the employees that have been trained. This explains why companies are concerned about strategies for attracting as well as retaining in order to ensure maximum productivity. In addition, there is the issue of company’s reputation. The reputation of the organization is of great value at all times. This a typical example of non-financial value that though it may not be reflected appropriately on the financial statement, the organization benefits a lot from it. It is important to understand that there are so many elements or issues that can work towards or against building the reputation of the firm (Blackwell 1953, p. 270). One of such issues could be the ethical considerations of the firm. For the company which is keen to follow all the ethical guidelines put in place, it builds itself a reputation that characterizes any good firm. In order for the company to have a good reputation therefore, it is critical to set strict ethical guidelines. Besides, it serves well to cultivate ethical culture in the organization. this starts at the induction stage of the employees and ought to be continuous. Employees must come to a level where they understand that for sure there is a reward for doing what is morally right. In the same way, they ought to realize the consequences of participating in any activity that can ruin the company. This will make all employees alert to the various actions that they are probable to taking in the course of their duties and their subsequent consequences. Recommendations From the information that has been given in the above discussion lays emphasis on the need to include non-financial information in the reporting process. It is true that the various changes in both natural and business environment demands a shift in the manner in which financial reports are drafted. Including non-financial information in the reports is one way of being elaborate on the various aspects that facilitated performance during the given fiscal year (Lev & Sougiannis 1996, p, 112). In most cases, the non-financial information reveals a clearer view of the long term strategies. As a matter of fact, currently auditors are using non-financial information quite often when assessing the going concern of an entity. In addition, the company ought to understand that non-financial information is to be incorporated since it is mostly ignored by financial statements. This information can be used to accurately forecast trends in relation to business in the future. All this highlights the significance of non-financial information in connection with financial reporting. Having pointed out that, companies ought to establish ways through which non-monetary value can be arrived at. The company may be required to provide non-financial information in terms notes to financial statement. Notes provide more information about transactions that cannot be directly reported on the financial statements (Cochrane 2005, P. 55). The non-financial information can be well delivered in form of such notes to the financial statements. This is supposed to enable the users of the financial information to have an in-depth understanding of the dynamics that shape the nature of the business. Since non-monetary items are not communicated in the same way monetary items are, it is important to provide in a manner that will render it useful to the user. This must be in a position to the fact that investors are tending to focus more on non-financial information for their investment decision. Organizations must find a way of addressing the need of investors through reporting the information that meets their needs. Conclusion The issue of non-monetary value in relation to financial reporting is very important. It comes at a time when several changes are taking place in the business world. In real sense, it can be so interesting for an organization to ignore the role of non-monetary items in the current world. Every organization seem to be in agreement that indeed non-monetary financial assets are very important. Therefore, it is important for organizations to come up with ways in which these assets can be represented on the annual financial reports. References Abarbanell, J & Bushee, R 1997, Fundamental Analysis, Future Earnings, and Stock Prices. Journal of Accounting Research35: 1-24. Barton, J. &Simko, P 2002,The Balance Sheet as an Earnings Management Constraint, TheAccounting Review77: 1-27. 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