International Accounting Standards Board - Assignment Example

Running Head: Reporting Business Performance Name Course Lecturer Date Question A The International Accounting Standards Board (IASB) conceptual framework is for all entities preparing general purpose financial statements. It is the process of developing a conceptual framework for the public sector that is applicable to the preparation and presentation of the general purpose financial statements of the public sector companies; this is for the public sector entities that have to conform to the requirements of the government in respect to preparing and presenting the financial statements. It aims to integrate the IASB requirements with that of the government in order to increase accountability, authenticity, transparency and understandability of the general purpose financial statements (Flamholtz, Bullen & Hua 2002). Essentially, the conceptual framework provides the basic principles guiding the preparation and presentation of the general purpose financial statements in line with IASB and IFRS (International Financial Reporting Standards). The objective of the general purpose financial reporting is the primary users of the general purpose financial reports, the present and potential investors, creditors, lenders, who use these reports to make decisions about investing, buying, holding or selling equity or debt instruments as well as providing or settling loans or even other forms of credits. These primary users, and many others, need information about entity resources not only to evaluate its prospects for the future net cash flows but also to evaluate how efficient and effectively management has discharged its responsibilities to exploit the entity's existing resources (Brennan & Connell 2000). The conceptual framework of the IASB provide a basis for interrelated fundamental concepts and objectives concepts that are used as the pillar for establishing consistent accounting as well as financial reporting standards. On the other hand, measurement of the elements of the financial statements determines the monetary value. Measurement determines the carrying monetary amounts at which the financial statementelementsare to be recognised as well as carried in the reports. Measurement involves selection of particular basis of measurement. The basis of measurement is essential as different methods of measurement have different effects to the monetary amounts of the financial statement elements (Choong 2008). As discussed above, the purpose of the conceptual framework is to help entities to prepare and present their general purpose financial statements in a way that address the needs of the users of the statements. The preparation and presentation of these financial statements is done in monetary amount. The monetary amounts are determined through measurements and determination of their carrying amount (Cho & Patten 2007). As such, the IASB conceptual framework forces entities to report their financial reports in monetary terms. Through measurements, each of the elements of the financial statement is assigned dollar amount and after presented in the financial statements. This is very important as it gives the users of the general purpose financial statements opportunity to see the performance of their investment; it also gives the potential investors a monetary value of the company elements.As such, and they are able to make decisions about the performance of the company as well as its future prospects. However, it is very important for the measurement to be done accordingly and with a lot of care in order to provide the right monetary amount that each element is valued (Flamholtz, Bullen & Hua 2002). Question B The report will focus and study Austal Company. It will use its 2013 financial reports in discussion of the report. There are several non-monetary items made publicly and available to this company that should be incorporated in the financial reports. There are several items that costed the company in acquiring inventories, purchases, products as well as selling activities that are non-monetary. It also includes the time that the company spent as well as the risk that the company products would meet as well as deliver the expected or promised benefits to the customers. All these are non-monetary items that the company should include in the annual report, they are available publicly(Brennan & Connell 2000). These transactions did not result in transfer of funds between the company and other party. The company was involved in exchange of inventories as well as movement of products. Importantly, the company increased the benefits of its products in the eyes of the consumers. This is reflected by the increase in consumer confidence with the company products. This did not result in exchange of money but the company value increased, it is important for the company to include this in the financial reports. It will show the shareholders and other users of the reports how the company customers and other consumers are having increasing confidence with the company(Guthrie & Abeysekera 2006). This will increase the confidence more and attract more customers. Other items that the company was involved in non-monetary terms are the acquisition of land. The company increased its land as reflected in the statement of financial position of the company. The value of the land acquired by the company is more than the price paid for the land. This value that is more than the price is the non-monetary transaction of the land; it should be included in the financial statements of the company. This is because the land will include more benefits and value to the company in future. These non-monetary items add value to the company. Another way that the company creates value through the non-monetary terms is by provision of quality information in the financial reports(Andriessen 2004). The 2013 annual report of the company indicates clearly the performance of the company. The company can improve on this as there is always room for improvement. Quality information is very persuasive to the users of the financial reports. It does not inform them but it also provides them with information for decision making. As such, the information has power to drive them towards or away from the company products and securities. Another value creation terms to be included in the financial eports of the company is the methods and accounting policies used in the preparation of the reports(Andriessen 2004). This is especially necessary to the regulatory authorities in order to conform if the company hasadhered to the requirements of the corporations act and other accounting requirements. By inclusion of the accounting policies, methods and other significant items used to prepare the reports, it indicates that the company observed all the requirements and that the reports are ethically prepared as well. Another way of value creation in non-monetary terms is increasing the value of human resource capital. Usually, this information is available but not included in the financial reports. This can play a lead role in emphasizing the things that are essential to true economic performance of the company.The human resource capital is a non-monetary and intangible aspect that is very important in value creation. Other value creations in non-monetary terms are information technology, innovative marketing by the company, new ideas from research studies, and strategic partners in business. These intellectual capital forms are very important in value creation. Another way that the company can increase value creation is to balance its financial forms of financial measurements with its non-financial forms of measurement. By identifying the weaknesses and strengths of the business activities of the company as well as trying to measure the non-financial parts, these are very significant essentials in value creation. The company should try and move towards a unitary and unified system or even a data warehouse to leverage the intellectual capital(Flamholtz, Bullen & Hua 2002). The development of better analytical tools is a recipe for improved decision making process. One thing that the company should add in the financial report is recognising earnings irrespective if there is collection of cash. Similarly, the expenditures that involve disbursement of cash also provide future economic benefits that are usually ignored in accounting. This brings out the difference between economic performances and accounting performance, they are also drastically different. While the balance sheet or the statement of financial position indicates the values of the assets and not their market values, it only discloses amount invested by the company. It misses a very important aspect in that it tells nothing about the success of the investments, the balance sheet does not tell how the assets or the investment have earned more than the cost of capital(Guthrie & Abeysekera 2006). In addition, building the financial report around the company's business model, under the context in which it operates as well as its strategy to address opportunities and challenges that it faces would increase the value in non-monetary terms. The issues and aspects that are identified on the onset of the report relating to the business model of the company as well as its operating context should feed through in to the company's business strategy; this is followed by performance reporting and governance in the financial reporting. This does not only create value in non-monetary terms but is also increases transparency and accountability. These are some of the things that will be included in the financial reports of the company. They are purely non-monetary and they help the company in creating value in their state (Mouck 2004). For them to work effectively and to provide the required information to the users of the financial reports, it is essential for the company management to understand how its business issues and opportunities reported in the financial statements will affect the investor’sevaluation of the business value. As such, the company should provide information that supports this evaluation. They are relevant because they could change the form of the company business activities while others may have instantaneous effects like step alteration in productive volume. Moreover, it is important to provide the context (risk and performance measures) so that the users of the reports can form their personal views of potential impacts of value. For example, if the company has a strategy of developing a certain market, it should help the users to contemplate its current and potential size instead of just explaining the strategy. This would help the readers very much; it is a very powerful value creation in non-monetary terms included in the financial reports (Andriessen 2004). Question C One way that this company can provide more meaningful reports to the stakeholders who need increasingly more non-financial information on the company's performance and value creation in a world of climate change, natural resource scarcity and overpopulation is by including their reports together with financial reports and not giving them as a separate sustainability report. Many stakeholders of the company are interested in the financial report and but do not pay attention to other reports(Choong 2008). As such, the company should focus on including climate change, natural resource scarcity and overpopulation information together with the financial reports. The company should indicate the measures it has put in place to counter climate change, the opportunities these measures present to the company, how the opportunities will increase the value of the company as well as how it will exploit the opportunities. By providing relevant and reliable information about these intangible factors, the company would communicate a holistic view of its management of risk and opportunities, as well as dedicate to prepare for the future(Cho & Patten 2007). Incorporation of climate change related information in the financial report would assist the company to achieve a holistic view of how this factor can affect its performance. It will also identify the necessary actions it will take to address the opportunities and risks. This will help the stakeholders make robust and informed decisions. They will be able to have understanding of the company's comparative position with respect to future challenges (Guthrie & Abeysekera 2006). The company should indicate how it intends to utilise the available natural resources. Although the natural resources may be scarce, the company should outline in detail in the financial reports how it intends to optimise the natural resources at its disposal. This will indicate how it will be able to conserve the scarce natural resources even while it optimises the little at its disposal. This will increase the confidence of the stakeholders as they will understand that the company is utilising well the scarce resources at its disposal(Mouck 2004). The company should also indicate how it intends to take advantage of overpopulation. Although it is a national problem facing the country, it presents an opportunity to the company. It increases the market for its products. As such, the company should outline how it will take advantage of the overpopulation to increase the value of the company, to gain more markets and increase its market share. This will make investors to have confidence in the company and hence invest more funds(Andriessen 2004). References Andriessen, D. 2004, IC valuation and measurement: classifying the state of the art: Journal of intellectual capital, 5(2), 230-242. Brennan, N., & Connell, B. 2000, Intellectual capital: current issues and policy implications; Journal of Intellectual capital, 1(3), 206-240. Cho, C. H., & Patten, D. M. 2007, the role of environmental disclosures as tools of legitimacy: A research note. Accounting, Organizations and Society, 32 (7), 639-647. Choong, K. K. 2008, Intellectual capital: definitions, categorization and reporting models: Journal of intellectual capital, 9(4), 609-638. Flamholtz, E. G., Bullen, M. L., & Hua, W. 2002, Human resource accounting: a historical perspective and future implications: Management Decision, 40(10), 947-954. Guthrie, J., & Abeysekera, I. 2006, Content analysis of social, environmental reporting: what is new; Journal of Human Resource Costing & Accounting 10 (2), 114-126. Mouck, T. 2004, Institutional reality, financial reporting and the rules of the game: Accounting, Organizations and Society, 29(5), 525-541. Read More