How to fix financial reporting
The report 'how to fix financial reporting' aims to provide the best possible solutions and measures in order to deal with the problems in issues of financial reporting. It mainly aims at improving the transprancy and accuracy of financial system in order to regain the investor confidence.
There were many meetings held regarding this issue, some of them are as follows: finance ministers in a meeting in Washington D.C discussed about the better fianancial methods inorder to setup and regulate these markets and to control the crisis. William Isaac, a former chairman of the Federal Deposit Insurance Corp [FDIC] made a decision to suspend the fair value accounting and new rule was introduced where the executives were allowed to follows their own model of financial accounting and judgement.
An accounting professor Paul Miller revealed the sequences to be followed by capital markets inorder to get success. The three of four constituencies as their customers, their emloyedd and their supply chain management where there workforce around gaining the number of customers and fulfill employess needs is considered to gain profitability and other issues. Where as the managerial issues in capital markets are enforced in order to maintain the cash flow and raise capital. The U.S. Securities & Exchange Commission and the Financial Accounting Standards Board introduced the off balance sheet financing and pension fund accounting.
A Kenneth Scott, senior research fellow at the Hoover Institution and a professor at Stanford University's law school discussed about the problem of mistrust of collateralized mortgage obligations CMOs and collateralized debt obligations CDOs. The importance of securitized assets to be combined with the bank data and bringing of all the information together to achieve the success was known.The major problem aroused by risky investments that ruined the balance sheets mainly by bank and the rules to govern public companies to comply the financial information system was noticed by the writer in the report. The Walter Pangano of Litigation Consulting & Forensic Accounting Services Group at Eisner LLP said that the assests should be more liquid then other requirements achieve success for companies.
The financial reporting systems should introduce the new electronic database formats which helps to regulates and analysis the data easily is said by Philip Moyer, the chief executive of EDGAR online. Where as the executive director of the Washington based center of audit quality stressed on using the tools to deeper understand the financial statements of all levels of the company.
Each industry maintaining the list of financial reports key indicating performance is more relavant then to have the SEC rule is said by Fornelli. Christine DeFabio, vice-president for technical activities at Financial Executives International [FEI] emphased on looking at the broad-based practices of companies with that of business environment where the ability to get cash and access to capital is understood and known.
Thus an overall discussions and suggestions in the article made by many people revolve around the most important matter that is the way of fixing financial reporting. The number of suggestion and the discussions made by the different people and collected by the author in the report shows the each and every consequency made by them in order to solve the problem of financial reporting.
Discussion
The accounting practiceses in larger companies is very complicated and no proper tool is introduced which inturn is reducing the confidence of investors. There is no proper disclosure of assest values, liabilities and overall risk on corporate balance sheets. The fair value of accounting will increase the dimensions of revelation significantly. [1] The non disclousure result in confusion of irrelevant and immaterial information.
Where in to deal with all financial reporting problems and accounting procedures an International Accounting Standard Board IASB issued between 1973 and 2001 presently catagorised in International Financial Reporting Standards exists. The framework of IASB the management decision making process is developed and applied in accounting policies with that of the relevant and reliable information disclousure. The management requires the defiantions, concepts of measuring assets, liabilities, income and expenses in the framework added in 2003 revisions to IAS 8.
The objective of the framework is financial statements is to provide the information about the performance and changes in the financial postion of a unit. The economic decisions and the present financial status of a shareholders and public is found out.
Philip Moyer, chief executive of EDGAR Online (EDGR), a Web site that publishes corporate filings to the SEC, explained the needs of introduction of electronic databae format that analysis the needs of spreadsheet and regulate the analyzing the data in the organization. The GASB Governmental accounting standard broad made a research project to monitor the electronic financial reporting by the state and local government to develop the need of standard financial reporting.
"It is that responsibility that led the Board to initiate a long-range project to monitor practice and determine how new media will be used by governments to provide electronic alternatives to traditional reports" is said by CAFR. [2] The U.K conceptual framework of ASB statement of principals published in December 1999 made an international agreement on a new framework which coordinated the accounting policies which included the revenue recognition.
The management accounting takes into account about the firm's potential cash flow which alternatively raises the cash flow. The effect of the events or transactions are known when they are paid but not at cash gained- Accural basis. This is an underlying assumptions made by IFRS. The information collected in this type of reporting is entirely known in the capital market a reporting to the investors. "The reward of the capital market head corporations won't be able to produce the difficult information and trust" is said by Miller.
The expectation has timely increased in the complex business environment among the investors and creditors which is very essential in decision making. With the introduction of XBRL the measuring, recording, and reporting of business activities is very useful information for customer in organizations.
The information communication of reporting has increased the technology innovations, the non impact elements such as the assets equals to liabilites with owner equity needs the change the method of reporting. The quarterlty and annually reporting is only useful the timely decision making purpose. Where as the SEC reporting format gave importance to the quarterly content information to increase the efficiency of capital market.
In todays information technology the expectation for more continuous business form of reporting where the demand is existing , the accounting professional need to provide these continous services with assurance on such reporting. The financial statement is prepared on the continuous operation for the estimated future - Going Concern, underlying assumptions of IFRS. Thus he XBRL and XML operation and report writing helps the way the information is collected and builds the assurance and trust."The normative framework provided by the economies is considered to be useful for the value of information system." [3]
The financial statement framework of IFRS describes the qualitative characterstistic which need to have the understandability, relevance, accountability, reliability and comparability and timeliness.
In the article Ristine DeFabio, vice-president for technical activities at Financial Executives International [FEI] said that the "the crisis is not fixable by knowing accounting and reporting". The procedure to solve this issue is to improve the tehchinques and disclosures of the illiquids market. "To create this kind of sound market the flow of the information, price discovery and the knowledgeable markets and its practicipation is very important. The effective supervision and regulation is also an important key for the investors and risk management processes by the financial instuations". [4] In a recent editorial journal the former SEC Chairman Arthur Levitt said thay the "banking regulation have one apprehension but it does not include the investor protection".
CONCLUSION
Recommendation & future research:
The financial-reporting standards rules are not based on the needs of the users of financial statements but it is on the issuers. The investors, managers, analysts and other users of financial statements all over the worls needs better disclouser. The FASB should be free from the too much political pressure and the SEC can enforce the determined financial reporting by regaining the investors' confidence. The accounting rules to the issuers such as to report the balance sheet controlling all the assests and liabilities, recording and recognizing the financial asstes and to forcast the potential risks in the changing market conditions.
The financial reporting system must be fixed to the investors and get to known the disclosure and transparency of the information required. The disclosure and transprancey commitment by the corporate managements must be fulfilled in the financial reporting system. Rather then to the loss of investors the financial reports must be beneficial. The internal controls of management accounting must be responsible and qualitative system. The management should appoint the audit which is independent without the personal relationships. The knowledgeable accounting should questions and judges the answers to get the reliable information.
The financial analysts and all the regulation acts has been increased inorder to increase transparency and the fair value accounting procedure has been extended inorder to cope up with credit crisis. If one put the creativity and energy inorder to strength the financial reporting system which will inturn rewarded with the new investors confidence with much dependence on financial reporting information system which can benefits many longterm investors.
The SEC and FRBS need to deliberate the research and the several recommendations on the research can be useful. "An agency theory and communication theory is more suitable conceptual bases for financial reporting. [5] The importance to view the context of the corporate authority and its encompasses much more than financial reporting.
