The Business Model Within The Annual Report

Decent Essays
The idea of including the business model within the Annual Report has been a controversial subject for some time. In the first part of my essay I will discuss the opposing arguments to this issue, by analyzing the effects on the following accounting conventions; relevance, faithfulness, comparability and understandability. As there is no clear and universally applied definition of the business model, for the purpose of this essay I will adopt one from the Oxford dictionary. It states that the business model is ‘’A plan for the successful operation of a business, identifying sources of revenue, the intended customer base, products, and details of financing’ '. Then in the second part I will consider the role that non-financial measures…show more content…
Faithful representation is present when the information is neutral, complete and accurately represented. Those who promote the business model hold that it plays a major role in the ‘’economic phenomena’’ and ‘’is part of the entity’s economic reality’’. They believe disregarding the effect it has on generation of cash flow (through assets and liabilities) and the accounting consequences does not give a faithful representation. Conversely, some say that reflecting the business model introduces bias and undermines neutrality of financial statements. They believe that in order to predict future performance the accounting standards should focus solely on the benefits and commitments that individual resources would involve.
Thirdly, comparability must enable users to compare financial statements over time and to those of other businesses, with the purpose of identifying similarities and differences. Some argue that lack of definition of the business model can be damaging to comparability, as again it creates bias by letting individual entities report their performance and financial position based on their own preferences. On the contrary, others believe that recognizing the business model enhances it by giving insight into the process through which cash flow is generated and by informing how different events are dealt with. This
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