Financial Statement Presentation And Disclosures

Presentation of financial statements is considered as being a very important activity for any firm now that it signifies the importance to its stakeholders. However, there are some concepts that are important in accounting that stakeholders have to know. The paper looks at the financial statement representation as well as disclosures that are related to consolidation associated with off-balance sheet transactions, Non-controlling Interests, and variable-interest entities. The paper will also look at disclosure requirements; it’s negative and positive implications it may have on the financials readers.

With regards to off-balance sheet Transactions, the recent examination of the same has shown that off-balance sheet transactions cover several different items which can include swaps, lending activities, forwards, futures, and options contracts. In the presentation of off-balance sheet transactions, organizations may omit such items from their balance sheets (IASB, 2009).

However, with the new changes, organizations are now expected to report such items on their respective balance sheets. Some organizations make use of off-balance sheet arrangements in reducing borrowing costs, managing risks, and collaborating with other organization. The presentation of off-balance sheet transactions is governed by the Accounting for Derivative Instruments and Hedging Activities, Statement of Financial Accounting Standard No. (FAS) 133, and FAS 149, Amendment of Statement 13 (FASB, 2008).

The consolidated financial statement in its presentation addressed consolidation by organization enterprises of variable interest entities that have the following characteristics;

1. The equity investment that is at risk is not enough to allow for the entity to pay for its activities without additional financial support that is subordinated to other parties, which is normally provided by other interests that will be in a position to absorb all or some of the losses that are expected in the entity.
2. The equity investors do not have at least the following characteristics that are essential in controlling financial interests;
3. The indirect or direct ability to come up with decisions with regards to the activities of the entity through voting rights or other related rights
4. The responsibility to absorb the losses that the entity expects to occur, which allows the entity to be in a position to finance its activities
5. The right to accept the residual returns that are expected by the entity to occur, which serve as the compensation for absorbing risk of the expected losses.

Non-controlling interests, in some cases referred to as minority interests, is the equity portion in a subsidiary and not attributable, either indirectly or directly to a parent. The aim of this statement presentation is to improve the comparability, transparency, and relevance of the financial information which a reporting entity presents in its consolidated financial statements for establishing reporting and accounting standards that require;

1. The interests ownership is subsidiaries to be by any parties that is not the parent be clearly labeled, identified, and presented within the financial position consolidated statement of equity, but separated from the equity of the parent.
2. The consolidated net income amount that has been attributed to the parent as well as to the non-controlling interest to be identified clearly and presented on the income consolidated statement face.

• Changes in the ownership interest of the parent while the parent remains in control of the financial interest within its subsidiary have to be consistently accounted for. The ownership interest of the parent in a subsidiary changes in the event that the parent earns additional ownership interest in its subsidiary or in the event that the parent sells part of its ownership interest in its subsidiary.

The main intention of financial reporting is to offer financial reporting information that is of high quality concerning the nature of primary financing, economic entities, and useful for the economic decision-making process. It is important to provide financial reporting information that is of high quality now that it influences positively capital providers as well as other stakeholders while making credit, investment, and such resource allocation decisions hence enhancing the general market efficiency.

Although both the IASB and FASB has insisted on the importance of high-quality financial reporting, one main problem that has stood out is how to measure and operationalize this quality. Following its context-specificity, an empirical assessment and reporting of financial statement and disclosures must include preferences among many constitutes (FASB, 2010).

Now that different user groups tend to have preferences that are not similar to each other, perceived quality is likely to deviate with references to the constituents. Also, users in a single user group are likely to perceive the importance of similar information differently considering its context.

Following this user and context-specificity, directly measuring quality appears to be problematic. As a result, a reader of financials has to measure the financial reporting quality indirectly through focusing more on the attributes that have been identified to influence financial statement reporting such as financial restatements, management, and timelines.

References

FASB (2008). Financial Accounting Series, Statement of Financial Accounting Standards No. 1570-100: Exposure Draft on an Improved Conceptual Framework for Financial Reporting. Norwalk.

FASB (2010). Statement of Financial Accounting Concepts No. 2., Qualitative Characteristics of Accounting Information. Norwalk

IASB (2009). Framework for the Preparation and Presentation of Financial Statements. London.