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Financial Reporting in the 21st Century

Financial Reporting in the 21st Century

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An essay for the 2012 Undergraduate Awards Competition by Zeina Ibrahim. Originally submitted for Accounting and Finance at Limerick Institute of Technology, with lecturer Michael Sheehan in the category of Business & Economics
An essay for the 2012 Undergraduate Awards Competition by Zeina Ibrahim. Originally submitted for Accounting and Finance at Limerick Institute of Technology, with lecturer Michael Sheehan in the category of Business & Economics

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Published by: Undergraduate Awards on Aug 31, 2012
Copyright:Attribution Non-commercial

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10/27/2013

 
 
Financial Reporting In The 21st Century
 
The business world has recognised the need for a more harmonised system of financial reporting dueto globalisation and has begun to move towards achieving this. As a result, this has called for a closeinspection of the composition, accuracy of comparability, and reliability of financial reports and thesystems under which they are prepared.As such, this paper looks at various elements of financial reporting, from the basics of what it is andhow it is governed and regulated, to the more complex matter of what consequences arise from theintroduction and implementation of the International Financial Reporting Standards. It examines someof the work produced by Ray Ball and Shyam Sunder, among others, on this topic with a view todetermining the benefits and drawbacks of the new standards.The findings of this paper are however inconclusive. While some of the advantages and disadvantagesof the new standards are highlighted, it is too early on to fully ascertain their true impact on financialreporting. Once enough data is available for the relevant research to be carried out, and theeffectiveness of the modernised system is tested, the subject matter of this paper should once again berevisited.
 
 
 
1
 
Table of Contents
APPENDICES
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APPENDIX A
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APPENDIX B
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2
 
FINANCIAL REPORTINGAn Introduction
Financial reports are essentially the documentation put together to monitor and assess the financialposition of an organisation. The purpose of financial reporting is
“to provide financial information
about the reporting entity that is useful to existing and potential investors, lenders and other creditors
in making decisions about providing resources to the entity”
(McConnell, 2011). These reports arevital in that they illustrate how the capital and funds generated by an organisation is being utilised, andwhether or not it is returning a profit; information which is of utmost importance to investors andlenders in particular.Financial reports should address several basic issues, fundamentally whether or not the organisation ismaking a profit or loss, and if a profit is made how much is reinvested or paid out to shareholders.They must also weigh assets against the liabilities of an organisation, ascertain the source of capitaland show whether or not an organisation is a going concern. Simply put, a financial report should tellyou how successfully or how poorly an organisation is running.This information however, can only be useful if it has certain qualitative characteristics. These are;
relevance
 
 – 
it must have the capacity to influence the decisions of the users and be prepared in timeto do so;
comparability
 
 – 
the information must be comparable against similar information gatheredover other accounting periods and be akin to that of similar businesses. There must also be
reliability
 
 – 
whereby the information presented represents full disclosure, is true and fair and free of materialmisstatement. Finally it must be
understandable
 
 – 
while it is assumed those using the financialinformation will have reasonable knowledge of the organisation and complex issues cannot be omitted,the terminology and classifications used must be clear and the information readily understandable.(International Accounting Standards Board, 2010)

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