International Corporate Reporting Issues Essay Example | Topics and Well Written Essays - 2000 words

International Corporate Reporting Issues - Essay Example The Objective of Financial Reporting The major elements of the financial statements are the Asset, Liabilities, Equity, Income and Expenses. The financial statements are prepared on the accrual basis of accounting and ‘going concern’ concept both being the fundamental principles for recognition, measurement and reporting. The objective of financial reporting could be achieved only if the decision-usefulness aspect maintaining the principle of stewardship is fulfilled in financial reporting. The information provided should be useful to the existing investors and the other stakeholders and relevant in decision making. Qualitative aspects should enhance the financial statements’ usefulness in predicting the future while confirming the fair and true view of the current status of the company and the statements are required to be understandable and comparable. A - Decision Usefulness Stewardship information is historical in nature and they are subjected to various types of analysis to assess the performance during a particular year for taking decisions. The comparison of the information over a period of time reveals the trends in the operations and the business. But, in most of the cases these could not be extrapolated to assess the future of the company as they are dependent on various internal and external environmental factors. The other statements and the reports like Chairman’s Report or Directors’ Report to the shareholders would be useful in assessing the future performance. Information regarding Stewardship objective The data available from the Income Statement and the Balance Sheets are useful for working out various financial ratios for the purpose of analysis with reference to various parameters such as efficiency in performance, profitability, leverage, interest cover or return on capital employed. For example we can work out operating margin from the Consolidated Income Statement as below: 2011 2010 2009 Sales 13,232 12, 958 12,283 Operating Profit 2,595 2,574 2,418 Operating Margin 19.61% 19.86% 19.68% The comparison for the past three years suggests that though there is increase in sales during 2011 by 2.11% in 2011 and 5.5% in 2010 over the previous years it is not reflecting in gross margin. This is mainly because there has been slowdown in the economy during this period and there has been increase in excise duties, marketing and other operating expenses. Similarly, we work out the current ratio from the balance sheet. 2011 2010 Current Assets 7161 6952 Current Liabilities 4915 3944 Ratio 1.46 1.76 Though the current ratio is better than the generally accepted level of 1, the ratio has come down during 2011. This is mainly because of the increase in overdraft from 587 in 2010 to 1447 in 2011. Stewardship oriented cash flow statement would indicate the movement of cash in the operations of the business. The details given in the Annual Report serves the decision useful objective in the areas such as efficiency in working capital management or plough back of profits accrued for long term capital investments. Elliott and Elliott (p. 16) state â€Å"Cash flow accounting provides objective, consistent and prudent financial information about businesses transactions. It is