The Publication of Financial Reports

Financial reporting is extremely important in our everyday life. You have heard of the many

The company’s annual report is important because it gives the shareholders a clear picture and understanding about how the company is doing financially. The annual reports provide thorough information on very significant section of the accounts, such as the balance sheet, the income statement, and the cash flow statement. The information presented in the annual report would also be essential to potential investor, employee, and any other people that may have interest in financial aspect of the business.

These range from Shareholders who will check on what direction the company is heading, whether it has achieved healthy profits, that it's solvent, the value of the company and possible signs of failure. Other users are the employees, who will want to check the statements to see whether their jobs are safe and see if possible, whether there could be wage and pension increases. This report offers information on operating results and financial conditions of companies to stakeholders as well as to shareholders. Any fraudulent financial reporting of a company like Enron for example would have a widespread and severe impact on employees, business

The US Generally Accepted Accounting Principles (GAAP) is a set of international accounting rules which originated from the United States. US GAAP can be defined as a set of accounting principles, standards and procedures that companies use to compile their financial statements (Elliott & Elliott, 2008). The International Financial Reporting Standards (IFRS) on the other hand are accounting rules originating from the United Kingdom. International Financial Reporting Standards (IFRS) are a set of accounting rules designed with a common global language for business affairs so that financial accounts of companies are understandable and comparable across international boundaries (Devinney, Pedersen & Tihanyi, 2010).

It is very important that users of financial statements such as a company’s managers, stockholders, bondholders, security analysts, suppliers, lending financial institutions, employees, labor unions, regulatory authorities, and the general public (Gibson, 2013, p. 1) know the importance of a financial statements’ performance. But, what are these internal and external stakeholder groups using the financial reports for? According to Gibson (2013), they use the financial reports for making business financial decisions (p. 1). Potential investors use financial reports on whether to but stock, suppliers use financial reports on whether to sell merchandise to a company on credit, labor unions use financial reports to help figure out their demands when they make an agreement for employees, and last management use financial reports to resolve a company’s profitability (Gibson, 2013, p. 1). A good example, if anybody plan on having more than one hundred participants, a financial statement and a Form 5500 must be submitted to a Certified Public Accountant for audit (Reinhardt, 2014, p. 47). The audit will perform everything according to Generally Accepted Auditing Standards (Reinhardt, 2014, p. 47).

According to Keiso, Weygandt, and Warfield (2013), Financial reporting’s goal is to “provide financial information about

The main purpose of financial reporting is to deliver transparent financial information regarding a company to the investors and general public. The financial crisis of 2008 had shown that absence of transparency in the financial statements may have an adverse effect on investor confidence. High quality accounting information is an essential criterion for well- functioning economy as investors rely on this information for investment purposes. Value relevance is thus one of the basic attributes of accounting quality. (Francis et al. 2004)

Capital markets are becoming more global and the needs for accounting standards on a global level have been the one thing companies have been struggling to understand for years. The International Financial Reporting Standards (IFRS) has the capabilities to provide these standards a level that investors and auditors can better interprets all over the world. Businesses have been questioning if the GAAP is going to be replaced by the IFRS. Many organizations have gotten so content with what the GAAP has offered that transitioning over to the IFRS may be resisted by

The U.S Generally Accepted Accounting Principles and the International Financial Reporting Standards are the two major accounting standards used by accountants today. The GAAP is currently used only by firms in the United States, while the IFRS is used by firms in 110 countries, including those in the European Union. The U.S Securities and Exchange Commission is in charge of GAAP for public companies, while the Financial Accounting and Standard Board overlooks private companies. The standards for IFRS are set by the International Accounting Standard Board. The main difference that separates the GAAP and the IFRS is that the GAAP was constructed based on rules, while the IFRS was created based on accounting principles. Although there are many similarities in the way most things are done, there are also striking differences regarding the way financial statements are reported, including inventory valuation, balance sheets presentation, asset definition, etc. This paper seeks to identify some of the major discrepancies between GAAP and IFRS, and present arguments people have made for and against converging the two standards.

The primary users of financial reporting are: the owners, to analyse the profitability and viability of the business and to decide on the future course of action, the employees for analysing the security of their jobs and the profitability of the firm and their future remuneration and management for assessing the firms performance and position so they can take appropriate action to better the future results of the company.

Published financial statements are prepared to satisfy the needs of the different users of accounts, of which investors form part. While the statements provide useful information to investors, they are not without limitations. The usefulness of using financial statements and its limitations are discussed below.

The traditional financial report is established on the basis of historical cost ignoring the influence and lacking of social contribution. For this reason, it is accepted that the reflection and information from the traditional financial report is not complete (Blair, 1995). Meanwhile, the timely efficiency and forecasting of financial report is lack (Wallman, 1996). For instance, the soft assets including human resource and talent capital are not confirmed and evaluated properly. For this reason, the financial report should have more flexible modes in order to satisfy the shareholders’ requirements. Furthermore, the traditional financial report is shortage of social responsibility in enterprise’s exposure.

Nevertheless, besides the advantages as mentioned above, financial reports have a number of disadvantages. Firstly, the expensive cost of providing audited financial statement that meet requirements of IASB (International Accounting Standards Boards) is a common problem of a firm. Secondly, because financial statement based on a specific time or period, it is historical record of financial status of a firm so it has a little value in predicting and forecasting the future performance of this firm. For example, in a period of time a company has produced a good financial report might only because of a sudden increase in sale or gaining a big contract so the sales and net profit increase but after this period, the situation is different. Another disadvantage of financial statement is disclosure. When public company releases their financial report, some difficulties can be revealed to competitors so they can access to the financial health of a company or they can copy some techniques and strategies in financial management of a firm.

The International Financial Reporting Standards (IFRS) - the bookkeeping standard employed by organizations in more than 110 countries has some key contrasts from the U.S. sound accounting guidelines (GAAP). At the reasonably level, IFRS is viewed as all the more of an accounting standard which is based on principles as opposed to U.S. GAAP which is viewed as a standard based on rules. IFRS, ostensibly, incorporates and displays the financial aspects of a transaction better than U.S. GAAP.

The International Financial Reporting Standards, or IFRS, are a set of standards designed to keep accounts comparable internationally. They are increasingly important as we move towards a global economy and with the increasing number of international companies. The United States, however, typically uses a different set of accounting standards. These are called the Generally Accepted Accounting Principles, or GAAP. The SEC has displayed interest in switching to the international standards recently, however. “In November 2008, the SEC proposed a road map that, if several milestones are achieved, could lead to a mandated use of IFRS for domestic listed companies in 2014. These actions of the SEC highlight the dedication of the U.S. to