Five Approaches to Transnational Financial Reporting

Abstract

This paper seeks to give an analysis of financial reporting, which is transnational based. There are five approaches, which need to be known. Their disadvantages and advantages of the approaches should be known. It should be known that focus should be financial standards of reporting, as well as its consequences. The issues involved with the process needs to be known as well. The challenges and benefits of using this system provide the answers needed in financial accounting (Siciliano, 2003).

Analysis of transnational financial reporting

In financial reporting, which uses transnational means, the report is for the purpose of regulatory decisions, investment and lending. This report is valid, even if it is found in the home jurisdiction which is outside and has disadvantages, as well as advantages. The various jurisdictions have certain requirements, which have to be met, in order to become valid. This includes restatements, reconciliations and adjustments (Siciliano, 2003). There is a need to ensure that international convergence and consistency exists in the many standards of accounting. The information obtained is necessary for providing management with information, which is useful in making effective and efficient decisions. There are various parties, which benefit from financial reports including; creditors, lenders and investors.

According to the framework by FASB there are five major financial concepts, which are useful in financial reporting. They are known as statements and they include;

1.SFAC No. 1-These are concerned with issues of business enterprises and their financial reporting objectives. In coming up with a balance sheet, the format normally used is the one, which is liquid. They have advantages which need to be known. Most times, it represents retained earnings and income, which is comprehensive. They may appear as separate entities in a combined form. It is useful in certain areas such as leases, pensions and payments, which are share-based. The disclosures are usually simple and they make use of instruments, which are financial. The disadvantage is that it might be represented in different forms making it difficult to understand. (Revsine Et al, 2008).

2.SFAC No. 2- These are concerned with accounting information characteristics, which are qualitative. The advantage of this approach is that it is verifiable as well as reliable. This means that in order to obtain an amount, which is standard, many measures have to be used. The framework provided by the IASB is not concerned with issues related to verifiability. This is because discovery of financial statement elements occurs (Revsine Et al, 2008). Business enterprises have financial statements, which have ten elements each, according to the conceptual framework of FASB. This approach provides a framework that involves income in a comprehensive manner.

3.SFAC No. 5- These are concerned with business enterprises whereby, financial statements are measured and recognized. It is easy to find out how liabilities and financial assets are used for purposes of cost, thus an advantage. There is a criteria based on de-recognition and classification of a simple nature (Revsine Et al, 2008). Most users of financial statements have to ensure that they are aware of requirements for disclosure. This is because it involves the process of measurement which might times become difficult and this is a disadvantage.

4.SFAC No. 6- These are concerned with financial statements and the elements, which are associated with them. When equity changes, income are thus defined, and this is in terms of net assets. The advantages are that, it encompasses sources, which are non-power, events and transactions, which occur in any business enterprise. It can be amended to serve its intended purpose when financial statements are being presented. In any given period, the net assets are affected by either a decrease or an increase. This is thus reflected upon in the equity entity as well as the existing balance sheets. Equity holders are exempted as they are not affected by transaction changes. It also includes loses, gains, expenses and income, which is calculated in terms of the total amount (Revsine Et al, 2008). Equity changes are observed in all the periods where activities take place. Income should be reported in a comprehensive manner as it is an element of every financial statement. The disadvantage is that this is not acknowledged by IASB.

5.SFAC No. 7- These are concerned with measurements of accounting through the use of present value as well as cash flows. The advantage is that, it involves the process known as asset impairment. During every date of reporting, there has to be indicators of impairment. This means that there is an amount, which must be recovered, and this is in respects to fair value. A criterion exists and should be met since it is extremely reversal (Revsine Et al, 2008). On the other hand, cash flows have to be known as they occur after tax has been paid. This means that the business enterprise must ensure that capital is deployed effectively. The disadvantage of this approach is that it is time consuming as well as being costly.

The most favorable approach according to me is the SFAC No. 6, as it combines all the essential elements of a financial statement. It is easy to establish, which net assets have been affected by changes in equity. One is able to know and confirm all the activities, which take place in the financial statement. The balance sheets provide the total amounts, which were reported in the income (Barney, 2009).

Conclusion

In conclusion, standards of financial reporting are meant to provide reliable and transparent information to stakeholders. This is necessary for purposes of decision making. The information is useful for coming up with strategies for growth. In turn, the various firms benefit in many ways.

References

Revsine, Lawrence. Et al. (2008). Financial Reporting and Analysis. New York: Mc Graw Hill.

Siciliano, Gene. (2003). Finance for Non-Financial Managers. New York: Mc Graw Hill.

Barney Jacob. (2009). Beyond economics: the U.S. recognition of international financial reporting standards as an international sub delegation of the SEC’s rulemaking authority Vanderbilt Journal of Transnational Law Vanderbilt University, School of Law.