Issues in Financial Reporting

1) SUMMARY OF ARTICLE

This article tries to establish the various challenges investors have in making investment decisions and the hindrance faced as a result of the standards set by various accounting boards such as IASB, FASB, IFRS, GAAP, etc. as regards disclosures, measurements and recognition of financial elements in a company’s statement of financial position.

The challenges were attributed to the unclear standards by standard setters and the misrepresentation of information by companies that confuses the investing public. The investors’ confidence largely depends on the accuracy and transparency of accounting information available to them for informed decision making.

The players in the article identified some financial elements that violate the qualitative characteristic of the conceptual framework (Understandability, Relevance, Reliability, and Comparability) and called for a revision of such standards for the interest of investors and also for the restoration of financial stability in various economies.

The identified issues are;

A. The controversial distinction between the operating and financial leases

B. The valuation and measurement of Impaired non- current assets

C. The Pension Funds Accounting

D. The valuation and measurement of Financial Instrument e.g. Collateralised Mortgage Obligations (CMOs)

E. Accessibility of Cash and Capital

F. Financial Gearing of companies (Debt-to-Capital ratio)

The major players in this article are G20 member board, former Chairman of the Federal Deposit Insurance Corporation (William Isaac), U.S. Security and Exchange Commission, Paul Miller of the University of Colorado, Ken Scott of Hoover Institution, Phillip Moyer of EDGAR Online, Walter Pagano, Christine DeFabio of Financial Executive International and various Accounting Boards (GAAP, FASB, IASB)

Paul Miller identified a gap on the IAS 17 Guidance on Leases as currently applied by some companies. The way operating leases are disclosed on the...