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Harvard
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Literature & Language
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Topic:

Understanding Company Accounts and Reports (Coursework Sample)

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Thus, this paper will evaluate financial reporting standards and their impacts as per the case questions.

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Understanding Company Accounts and Reports
Student’s Name
Institutional Affiliation
Understanding Company Accounts and Reports
Introduction
Finance forms an integral part in the business frontier by ensuring successful business operations. As such, the ever dynamic business environment incorporates the use of various financial reporting strategies in the formulation of vital decisions for the business. However, the implementation of financial reporting standards in the global environment has become a plausible approach with diverse repercussions. The clear comprehension of financial statements, ownership structures and so forth has become the various beneficial outcomes of financial reporting standards. Thus, this paper will evaluate financial reporting standards and their impacts as per the case questions.
Q1
The conceptual framework for financial reporting published by the IFRS foundation sets desirable qualitative characteristics of financial reports. Do you agree with these objectives and their views? Yes
Why?
The investment into a more common form of financial reporting has become the fundamental operational approach among different organisations. As such, the harmonisation of financial reporting standards across the globe through implementation of IFRS (international financial reporting standards has ensured that desirable qualitative characteristics in financial reports since it has enabled:
1 An efficient description of the organizational sources of finance
In the financing of both business start-ups and business operations, short and long term financial sources are important. Further Brigham (2013), states that the two main sources of finance are debt and equity financing. In respect to Davis and Elizabeth (2011), equity financing for a business is characteristic by the fact that a business owner parts with a slice of whole part of his businesses in order to secure the finances. In equity financing, there are numerous sources of finance which ensue from, friends, investors, personal savings, equity loans and many more. Moreover, equity financing is much longer in time for repayment and the main costs are incurred in form of dividend pay-out and salaries that may be meted to the shareholders who form the board of directors (Bhat, 2008).
On the other side, debt financing is a crucial part in business operations since through the form of financing, businesses can sustain short term operations or investments. As such, the various sources of finance in debt financing include; bank loans, loans from business partners, bond issue and so forth. In debt financing, the main costs incurred are interest rates. Hence, the emphasis into the implementation of the financial reporting standards (IFRS) is highly advisable in the business market. Organisations that make transparent reporting pertaining to their sources of finance catapult effective and clarity in business performance. Furthermore, effective financial reporting of the financial sources makes it easy for the regulatory bodies to examine the legality of the financial sources of the organisation. Through the IFRS, plausible environment for business conduct is evident among diverse organisations across the local and global environment.
2 Enhance the description of the link between ownership structures and financial performance
The existing link between ownership structures and business financial performance has been of concern since time in memorial. Admittedly, the different viewpoints regarding the ownership debate or arguments have become ever dynamic in the generation of a complex situation in the determination of the influence of ownership structure on financial performance of a business (Sharma, 2011). In enormous and highly efficient markets; the presence of agency costs prevails. On the other hand, weak markets are bombarded with the extreme possibility of principle expropriating the shareholder’s value (Bhat, 2008). Analysis into the IFRS mandate has shown or revealed that inefficiency in control in terms of ownership expropriation of minimum shareholder value is engulfing the market (Bhat, 2008). Moreover, the various institutional investors have been lagging behind in ensuring effective monitoring of the various parts or portions of firm performance. Firm performance is in a declining trend as group diversifications of ownerships ensues and surpasses a certain limit. Business operations commence with the simplest form of ownership which is sole proprietorship followed by partnerships then both private and public limited companies. As the company begins to increase in complexity, the various simple businesses commence sourcing finances from more long term sources such as equity financing. Through an Initial public offer, the first instance of relinquishing of control begins to take form (Bhat, 2008). Successively, the issuance of shareholder capital ensues which is dependent on the financial foundation of the business coupled with other important aspects of analysis and measurement. The diffusion of control results into information need or requirement by the multiple stake owners of the business. Sharma (2011), states that previous to the simpler form of business ownership, the new and complex ownership structure requires a more transparent, up to date, accurate and prompt information on the financial performance of the business. Furthermore, there is an increased portfolio of stakeholders that require the information on the financial performance of the business (Sharma 2011). Moreover, Sharma (2011) asserts that incorporation of multiple ownership groups results in the following aspects in measurement of financial performance as per the IFRS;
* Accuracy and proficiency in the measurement and analysis of financial statements
* Multi-focused strategies in financial reporting
* Incorporation of a more transparent mandate in sustaining the information needs of the various ownership groups
* Increased cross-border comparability of the various financial statements
Thus, from the analysis, the dynamism in business growth and diffusion of control has a great role in influencing the measurement of performance in a business as per the IFRS. As such, complexity of a business dictates the level of accountability, transparency sensitivity and many more in the measurement of financial performance.
3 IFRS has become a plausible tool towards effective globalization of operations
Globalization has become an aspect of concern that has played a huge role in shaping and determining the role of ethics, governance and accounting standards both in financial reporting and decision making. Admittedly, the degree of concern into the role of ethics governance and accounting standards has been profound mostly in the economic frontiers of the global and local business sectors (Zùlch, 2011). Accounting discrepancies, incorrect financial reporting, market stock failures and so forth have been outcomes of improper decision making as a result of under-utilization of accounting standards coupled with unethical governance in decision making (Prasana, 2011). Businesses driven towards shareholder wealth maximization and strong business performance have incorporated dubious measures or strategies in their accounting strategies which have resulted in huge losses to shareholders and other business partners. Through some dubious decision making strategies, many investors or businesses have suffered greatly (Zùlch, 2011). Admittedly, the public image has become subject to ponder such that businesses go through various unethical means to sustain it. However, the globalization phenomenon has also highlighted the significant role of IFRS through ethics, governance and accounting standards. Through incorporation of IFRS, ethics, governance and accounting standards in decision making, they will ensure the following;
* Transparency in business operations
* Perpetual enhancement of globalization
* Cross-border comparability of business performance
* Sustain competition both locally and globally
* Sustain flexibility among businesses in similar or different sectors
Furthermore, a more unified and holistic business environment of operation will be generated in which business decisions will be made on the basis of sustainable reasons and policies emanating from IFRS. Thorough ethically based businesses will generate enhanced governance of businesses. Governance which comprises of the linkage between a company and the society will form the lynch pin between ethics, accounting standards and business decision making. IFRS lays forth similarity in financial reporting among organisations from diverse regions across the globe. The investment into common financial reporting standards ensures that companies can effectively compare performance and ensure competitive environment. Competition on a global scale results into quality products and services to the potential customer market. Thus, conformity to the IFRS set standards lays forth a neutral and plausible environment in which organisations can compete effectively under ethical and performance centric operational mandate.2.
a.
China has its own generally accepted accounting standards that are used by companies to prepare their financial statements. These accounting standards are improved over time to match with the international standards (Zùlch, 2011). However, it should be noted that the China accounting standards differ significantly with the international financial reporting standards. There is a need to find out why these standards are very different.
IFRS are prepared in London, in UK, with the aim of influencing the accounting standards that countries use. The various countries therefore have bodies that make accounting standards, also called generally accepted accounting standards. In this case,...
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