Significance of Financial Reporting

1702 Words Sep 25th, 2006 7 Pages
¡¥Significance of Financial Reporting¡¦

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Student No. : S00042472
Student Name : Janak Patel The Collapse of the Corporate Giants like Enron and WorldCom have raised the imminent question, which always remains in the back of an investor¡¦s mind, ¡§Can I trust my hard earned Capital in somebody else¡¦s hand ?¡¨ This is not the first time that investors have lost their trust in companies however the fact does not change that the cost of capital from the market has increased significantly for the companies. Investors have started to invest their capital in risk free securities rather than in company stocks. Investors have also started to look with contempt and doubt at a company¡¦s financial reports because some of
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Furthermore the fundamental principle of financial reporting is that the view presented by the reports should be true and fair. And further principles suggest that board of directors should aim for the highest level of disclosure of the facts which are understandable by avoiding damage to their competitive position. They should also aim to ensure the integrity and consistency of their reports and they should also meet the letter of the reporting standards such as GAAP.
Here the Investors should seek disclosure and simplicity. The more companies say about where they are making money and how they are spending their resources, the more confident investors can be about the companies ' fundamentals. It 's even better when financial reports provide a line-of-sight view into the company 's growth drivers. Transparency makes analysis easier and thus lowers an investor 's risk when investing in stocks. That way you, the investor, are less likely to face unpleasant surprises.
As per the views of George Bennet Stewart III of Stern Stewart & Co. the current Accounting Practices are of no use in determining a company¡¦s current position. In the United States of America, President George Bush has created a new oversight board to regulated accounting standards. But according to Bennet these reforms just solves some of the problems but they do not provide a full fledge solution.
Here the main problem is not with companies like Enron and World Com who
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