Company Reporting Rules and Regulation - Coursework Example

Company Reporting Rules and Regulations Financial reporting can be simply defined as setting relevant documents, which are normally prepared by government agencies (external auditing) or prepared internally by internal company auditors, at the end of the company’s accounting cycle. The financial reports prepared usually contain the detailed and comprehensive summary of accounting information for that period, inclusive of summarized data like background notes (footnotes), forms and other necessary data required for an up-to date financial report. The financial report must explain how the company raised its capital, investment projects and the accompanying allocation, the cash inflows from that investment activities, the amount of debt borrowed, profit realized, the shareholders earnings (dividends), and other vital financial issues. The company financial reporting principles and guidelines are commonly applicable to the reporting standards of registered organizations. The Lloyd’s banking is one of the most prestigious British financial institutions. The company offices are situated at 25 Gresham Street in the city of London. The activities of the Lloyd’s Banking Group involve retail banking, pensions and insurance, wholesale and wealth and international. It has extensive operations in the Middle East, Europe, USA, Africa, and Asia. Lloyd’s Banking Group usually releases its financial results semi annually and annually. When preparing its company report for the year, the company usually ensures that it has followed the established rules and regulations as stipulated by accounting bodies like, GAAP and IFSR. The Lloyd’s Banking Group annual financial reports must comply with the Generally Accepted Accounting Principles (GAAP). These common sets of principles, guidelines, procedures, and standards are used in compiling financial statements. They are a combination of standards set by policy boards and are accepted universally as ways and principles of recording, analyzing and reporting the various accounting information. GAAP deals with pertinent issues like recognizing revenue, classifying items on the statement of financial position, and the outstanding shares information. All companies, whether private or public are required to comply with GAAP rules when they are compiling and reporting their financial reports. When preparing the annual report, the Lloyd’s Banking Group is guided by the International Financial Reporting Standards (IFRS), which enables it to follow stringent guidelines when it comes to delivery of the annual financial reports. The Group must understand the basic framework of the IFSR. In its development, these regulatory bodies must then be updated, refined, and tested using the applicable and existing concepts that are reflective of the ever changing financial market, business issues, and the economic strata that has surfaced in a period of not more than two decades since the initial development of these concepts (Barrow, 2009). The Lloyd’s Banking Group must ensure that in the absentia or lack of application of the set financial reporting and other accounting principles, the management must employ its judgment when coming up with an accounting policy that leads to getting relevant and reliable information (Termin, 1991). In the process of making the above stated judgment, the International Accounting Standards (IAS) requires the company to look critically into the definitions, recognition policy, and the measurement criteria for its assets (both fixed and current), liabilities (both short term and long term), income, and all the expenses in the established Framework. The Lloyd’s Banking Group must prepare financial reports that are vital in understanding the performance of the business. The reports must be enriched with information that shows where and how much the company sourced the economic resources used in production. The changes in these items must also be indicated in the terminal or annual financial reports. Quite importantly, the information on the financial reports must be material enough to enable the Group’s management to make either long term or short term financial decisions concerning the company. Investors and creditors must find the information on the company’s annual financial report important in assessing the amounts, the stipulated timing of getting their returns and the uncertainty or riskiness of these returns (Tracy, 2009). The financial statements of the Group are usually designed to aid the management in prudent decision making. Once they are prepared, the company is required to compare, analyze and update any information required. The annual report must be prepared in logical and clearly defined order for easy understanding among the users of the information The annual report must have a CEO’s report, chairperson’s report, and the auditor’s report on corporate matters, the mission statement, the statement of director’s roles and responsibilities, and the letter of invitation to the company’s AGM. The Group’s report must also include the statement of the financial position, the auditor’s report on the prepared financial statements, the statement indicating the value of the company’s retained earnings, the cash flow statement, the income statement and the footnotes (background notes) to the financial statement. These annual reports should be prepared in compliance with the IFSR or GAAP rules and regulations. The company is also required to compile its annual returns. The annual audit must also be included in the company’s annual report. The annual audit must be presented as part of the annual report to the shareholders during the AGM. The audit must be compliant with the IFSR and has to be carried out by a certified public accountant (CPA). The annual audit should include the director’s report, the annual accounts indicating the general view of the annual financial statement, plus the auditor’s report, which shows whether the profit or loss and the statement of the financial position gives or reflects a true picture of the said company’s financial status (Keller, 2008). The Lloyd’s Banking Group in its annual report should declare the tax paid and due. The accountant should be given responsibility to verify taxes like the business tax, VAT, consumption tax (if applicable), fuel levy and other wide array of taxes commensurate to the audit result. Taxable elements like expenses, costs, and income must be specified in detail. The Group should also declare the dividend distribution. The dividends could be either used as profit plough back or for repatriation to shareholders. It should source its rules governing its matters on financial report through the GAAP, standards of best practices in corporate management, and the stock exchange rules (Gibson, 2010). Another important regulation in which the Group should comply with in the preparation of its annual report is to avoid fraudulent reporting. Fraudulent reporting can be defined as knowingly, and intentionally omitting some vital data in the report with the intent of evading tax obligations. It could also mean adding intentionally, and knowingly facts which are immaterial and misleading in order to exhibit the company as successful so as to evade liquidation or being blacklisted as corporate failure (Farrell et al, 2009). The fraudulent reporting can be attributed to poor internal audit control or poor business performance. Too much pressure on the executive management, for example, to present unrealistic profits may result in fraudulent reporting. According to the accounting profession, it is not the role of an auditor to detect fraud over and above what can be easily determined with concise application of GAAP procedures. Depending on the kind of inconsistencies in the reports, especially dealing with those concerned with collusion and forgery, a properly executed and designed audit may not be able to expose a substantial irregularity. The company should therefore, understand that an auditor does not play the role of an insurer and that his or her report does not give a 100 per cent guarantee that financial statements of a company does not carry any fraudulent information. To summarize, the Lloyd’s Banking Group report should be covered by the auditor’s unqualified report and opinion when they have discovered that the financial report of the company is fair and true (Porter et al, 2009). His or her unqualified report should include at least three paragraphs-the introductory, scope and the opinion paragraph. Apart from the unqualified opinion, the auditor can come up with a qualified opinion, a disclaimer opinion, or an adverse opinion. The auditor’s conclusion that the report is true constitutes a qualified opinion. He or she issues an adverse opinion when they think that the financial reports are inaccurate or incompliant with the GAAP. Disclaimer opinions are issued when the auditors lack enough information to roll out an unqualified opinion or when they are dependent on the companies which they are auditing their annual reports (Epstein, 2008). References Barrow, C. (2009) The Secret Language of Financial Reports: The Back Stories That Can Enhance Your Investment Decisions. New York, NY: Kogan Page Publications. Epstein, L. (2008). Reading Financial Reports for Dummies. London: New York, NY: John Wiley and Sons Ferrell, C., Fraedrich, J. and Ferrell, S. (2003). Business Ethics: Ethical Decision Making and Company Development. New York, NY: McGraw Hill Publishers Gibson. (2010). 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Inside the Business Enterprise: Historical Perspectives on the Use of Information: A National Bureau of Economic Research Conference Report. Chicago, CA: University of Chicago Press Tracy, A. (2009). How to Read a Financial Report: Wringing Vital Signs Out of the Numbers. New York, NY: John Wiley and Sons Read More