Necessity Of A New Financial Reporting System

Technological and economic changes have bearing on the reporting system. Reporting system is the way in which organizational information is passed to the stakeholders both intern Accountants al and external environments. These changes call for a new reporting system that responds appropriately. This is so also to ensure that the stakeholders get the appropriate information and also help minimize scandals as witnessed before such as at Enron and WorldCom.

In this line, the Canadian Institute for Chartered has come up with a value based reporting while efforts are underway to develop improved an improved framework for financial reporting. This would be reflected in both the preparation and reporting the financial statements. It would also take into consideration the scope of income, asset valuation strategy and impact of uncertainty as well, areas in which weakness of the current reporting system has prominently featured.

As suggestions on the perceived excellent reporting system such as the proposed total change are put forward, the contribution of technology (including the internet, and communication devices) should never be underestimated both as having contributed to the change in the way companies transact business, changing the types of financial arrangements and information processing as well as a channel of communication.

All these give complexity to reporting. Thus the need for the development of more appropriate reporting system, an endeavor which is beyond the accounting profession by itself and requires the cooperation of and bringing on board wider set of stakeholders. Starr committee proposed a model which emphasizes on the way in which business information is measured, accounted for and communicated to stakeholders. It considers the reporting process as well.

Many reports focusing on the need for a revised financial reporting system such as the Galileo attributes business today to technology and made assumptions that the new reporting system must arise from IT background, while others minimize the role of technology to presentation of reports on web. According to the observation by Rebecca T McEnally, the development of new products and services in the business must correspond to a reporting system ensuring that financial statements are not only relevant but also clear, accurate and complete.

That accounting systems does not reflect the current business economics and that financial statements do not reflect the debts and company liabilities. All having been suggested, it is imperative to note that, financial reporting is needed so that both the internal and external stakeholders, are at par with the organizational financial information on the previous performance and the future prospects. , Information accessibility would limit the possibility of deliberate information distortion and would aid future forecasting.

Before, when tangible assets were used to produce tangible goods, reporting system concentrating on disposition of such assets were appropriate as opposed to today when companies use knowledge and skills to produce intangible services and in which users need to understand how companies operate and also to hold the managers accountable. It should also provide information that is useful to the current and potential investors, creditors and other users in decision making.

Of consideration in financial reporting are the users of the information, the cost of information processing and reporting and the process of financial reporting. These will enable the analysis the users are able to perform, improve instruments of communication and give appropriate weights to the statements. The much needed financial reporting system should take into consideration the dominance of the market by the professionals as well as the effect of technology on operational cost and reporting.

It should also consider the entire process of information generation involving the stakeholders both within and outside the firm and considering fundamental issues such as the transaction between meeting the needs of complicated users for more data against the concerns of the firms managers about revealing competitive data, what is gained, what is lost when firms process information less and users have to do more and how much assurance will be provided with the information and who will provide it.

The brilliant ideas proposed above in developing a financial reporting system that could embrace the technological and economic changes that have taken place in the business sector are becoming and essential. The change in technology is a viable consideration due to its much effect in the business operations as well as the communication arena as a whole. This in turn affects the costs of report preparation and distribution.

The need to involve all the stakeholders not only as recipients but also in the report preparation would enable them have access to the basic information that affects the business and thus enhance their ability to understand the business operations better. If the above are implemented, the reporting system would be efficient in serving its purpose as well as meeting the needs of the diverse personalities involved in the business. REFERENCE http://www. cfapubs. org/doi/pdf/10. 2469/ccb. v2005. n4. 4001