Law report（part 1 and Part2） Essay Example

Improving Annual Report Requirements

Improving Annual Report Requirements

Present Arrangement on Business Reporting

Stakeholders are keen on ensuring that business management provide sufficient information associated with their accounting policies, judgments, and estimates that arise from the supplier arrangements. It is important that business provide investors clear and relevant information to enable evaluation of the business’ business performance and business positions (Financial Reporting Council, 2014). Most boards expect to see high quality disclosures in such area of reporting. Critical accounting estimates are considered the vital to the financial statement management although it needs very difficult, complex, and subjective judgments. In most cases, the disclosures of the registrants regarding critical accounting are too general and do not have to merely repeat the disclosures already indicated within the notes to the financial statements. The registrants need high levels of awareness associated with the management’s discussion, and analysis (MD&A) system which needs disclosure of the significant accounting when the assumptions and estimates’ effects is the material to financial statements and when the nature of the assumptions is material. This may be because of subjectivity and judgment (ACCA Global, 2012). In such cases, it is important to provide the analysis of the fears associated with making the estimates of accounting as of the dates and variability in financial reporting which are able to result reasonably until resolution of the uncertainties. With these factors, the current disclosure arrangement is inadequate. Moreover, the disclosures need to tackle why the accounting estimates or assumptions have the risk of change and analyze the arrival of moth estimates and material, the accuracy level, notable changes, and probability of changing in the future. It is important that the disclosures supplement the supplement the summary of important accounting policies within the notes on the financial statement through adequately looking into the areas considered subject to the judgment and provision of meaningful assumptions and methods utilized by the management.

Comprehensive Analysis of the Existing Corporate Reporting

Organizational annual reports are important since they provide vital information, which enable various stakeholders to understand the financial performance of the business, the business model in place, strategic growth for future investments, and major institutional risks. Considering the important roles played by the annual reports within the corporate reporting frameworks, it is of significant to ensure relevance and presence of coherence and balanced picture of the organization and associated forecasts (PWC, 2016). It is believed that annual reports are becoming a compendium of various reporting requirements that needs to be placed within the businesses. Moreover, there has been steady increment in the laws associated with disclosures while responding to the crises and demands to ensure transparency that is more corporate from various players: the government, investors, and regulators. The initiatives from the individuals have values although they have become more onerous that is likely to obscure important functions to hold the business into account. Accordingly, report’s size has increased with businesses continue to publish information, which may be viewed overly indigestible and complicated.

Most stakeholders are encouraging improved reporting to ensure that businesses offer insightful and understandable picture on how their corporate are performing as required to the wider stakeholder audience. Therefore, it is important that the reports are easy to navigate to ensure that all users able to drill down from the high-level information in the areas that they have great interests. Furthermore, the organizational boards need to understand that public interests require them to ensure openness and informative on the performance of the business. The annual reports need to provide a chance for the businesses to communicate the data required by the stakeholders rather than establishing an exercise driven with compliance and box ticketing (Ernst & Young, 2011). Those preparing the reports should braver and yield annual reports responsible for provision of meaningful and relevant information that highlights the coherency of the story. Among the European-listed businesses, the adoption of the International Financial Reporting Standards (IFRS) has been able to contribute to transparency and comparable reports and enabled the EU capital market to operate in an efficient and effective manner. Most of the investors have pushed their support for the value the IFRS reporting standards. To achieve the required standards of reporting, the regulators need to take active and liberating roles.

Some of the annual reports are clear and straight the point. Nonetheless, based on the analysis, most reports seem to be long and complex, which makes it difficult to understand. The study on the financial reporting and analysis undertaken by CFA UK reveal that most of them are clear. Besides, risks and fears have turned out to be the general tick-box that that notes each risk instead of considering bespoken review of the real current risks. However, most of the reports seem to have irrelevant information which seem to a problem that developed by accidents (ICAEW, 2011). The study revealed that there are various factors contributing to too long and complex annual reports: firstly, the regulations continue to apace with increased numbers of disclosures needed d in both the back half and front half of the yearly reports. The most important question is the need of the information provided. Secondly, even though the regulators have significant role to play in ensuring the achievement of the highest quality level, more needs to be undertaken to assist the preparers. In most cases, too often the preparers include information on the annual reports based on the perceptions of the regulators instead of the actual needs or due to organizational experience on the regulatory reviews that assist in shaping the perception.

Currently, the manner in which the annual reports are presented is old fashioned. Business entities need to think of how technology can assist in enabling better to information considered of great significance instead of simply utilizing the yearly reports as a storage area for various matters associated with the business. For instance, there is no necessity of preparing one set of report with images for the shareholders and without images for the Companies Houses. Using such activities to undertake things differently might be inhibited by the current regulations or laws, which requires review (Lee, 2009, 127). However, technology might not restrict such practices. Another issue experienced by the businesses is production of the annual reports within the silos, which involves limited communications between that in-charge on the front-line narrative, and financial statements that ceased to be a practical policy. Without the coordination yearly report production, the outcome may have less chance to address the challenges outlined and complying with the Code principle, which needs to be fair, understandable, and balanced. In such cases, integrated thinking and actions are of great significance. One of the areas of tension within the corporate reporting relates with the relevance of the non-GAAP, which stands for Generally Accepted Accounting Principles. Inadequate level of transparency and consistency associated with calculations make annual reports vulnerable to accusations of biasness or misinterpretation. The solution to such problems is development of common templates for adoption by the businesses so that the users are assured reasonably of consistency between the similar businesses. Nonetheless, such approach needs to be applied with some care since businesses may have diversified business models or structures, which genuinely leads to utilization of various performance measures.

Improving Annual Reports Reporting Based on ASIC Requirements

Businesses need to prepare their reports in accordance with Chapter 2M of the Corporations Act of 2001 or the Corporations Act. According to the Act, the reports are subjects to auditing and lodging through the Australian Securities and Investments Commission (ASIC) within the four months of the financial year. It is important that companies comply with various annual reporting requirements. While businesses need to keep their financial records in a bid to track their business activities, some businesses seem to have additional reporting requirements of preparing and lodging the financial reports with the authority (Australian Securities and Investments Commission, 2013). The reports need to prepared according to the applicable standards while making sure that the disclosures are relevant to guarantee transparency and a document that informs the readers regarding the activities and organizational financial position. The priorities of ASIC include assisting and protection of the retail investors and consumers, building confidence in the integrity of the Australia’s capital markets, facilitation of international capital flows and enforcements, and improving the services and ensuring reduction in the cost through new technologies and processes.

ASIC’s annual reporting focus on various aspects. Many businesses have made significant impairments write-downs due to ASIC inquiries. However, some businesses continue to apply unrealistic cash flows and assumptions and to some extent, they asses material mismatches between the cash used within the business and the tested assets. In such scenarios, ASIC recommends that fair value less costs to sell should not be used based on the discounted cash flows especially if there is unreliability of the forecasts and assumptions. Moreover, intangibles amortization needs to be considered. Businesses need to amortize their intangibles within the contractual period or legal right. There should be exclusion of the renewal periods unless there are renewal rights (Australian Securities and Investments Commission, 2013). The disclosure sources reflecting the estimation of the uncertainties and important annual reporting policy judgments need to be made in a specific manner. The major assumptions and sensitivity analysis for asset valuations are important to the report users; thus, it is important to include the disclosures in foreseeable changes. In some cases, the assumptions may lead to impairments. Although it is not yet operatives, the annual reports need to disclose the impacts of new reporting standards on the revenue under the contracts.

To achieve the required reporting standards, both the regulators and standard-setters need to ensure that they play active and liberating roles. The auditors should read the annual reports on the mindset of the users in a bid to determine the extent of fairness, balance, and understandability. In case the explanations are inadequate or misleading, the auditors need to challenges the preparers to improve the quality of reporting. When the investors are to make well-informed decisions, then their focus should be encouraging the provision of clear and relevant information within the annual reports. Research reveals that, to have an efficiently running capital markets, it is important the investors dialogue with the businesses they need to invest in (Securities and Exchange Commission, 2015). Considering such a two-way stewardship dialogue, business entities would be put in a stronger position for understanding the factors that they need disclose to better inform its investors. It is time that the annual reporting standards genuinely meet the expectations of UK Corporate Governance Code that require fairness, balance, and understandability.

To improve the annual report, ASIC recommends that the preparers to ensure provision of only important and applicable information. Improvement of annual reporting depends on the capacity of various parties: preparers, auditors, investors, and regulators. For the preparers, they need to invest their time on the annual reports through telling complete stories that make sense. An important thing that the public does not understand is that fair, balance, and understandable is one thing, which also contributes significantly to the best benchmarking (CFA Institute Centre for Financial Market Integrity, 2007). The preparers need to avoid using technical jargons simply because the standards and regulations require them. Such jargons are of little value especially if nobody understands. The four parties need to work constructively to determine important issues that need change. In cases where there are exemptions from disclosing the information considered of less important, the business needs to utilize fully them but avoiding misuse. Exceptions allow business to unveil material supplementary that the organization lately removed due to ignorance by the Companies House.

To some extent, the auditors need to take blame for failing to focus on the quality rather than quantity. While advising business entities, it is important that the auditors go ahead to note the missing disclosures. When the preparers include too much information, then they should emphasize them. Furthermore, the auditors should share the best practices with businesses and effectively work with the regulators for achievement of the best agreement on the information that needs to be included in the reports. Considering that reporting standards are prescribed by different standards, laws, and regulations as enshrined in ASIC, there is need to undertake a review to ensure that the report is informative and understandable. There is need to assess whether all the included information in the report should be there and assist businesses to break the perception on the information that needs inclusion.

References

ACCA Global. (2012). Give investors what they need. Retrieved April 24, 2017, from http://www.accaglobal.com/ie/en/member/discover/cpd-articles/corporate-reporting/holt-oct16.html

Australian Securities and Investments Commission. (2013). Improving financial reporting | ASIC — Australian Securities and Investments Commission. Retrieved April 24, 2017, from http://asic.gov.au/regulatory-resources/corporate-governance/corporate-governance-articles/improving-financial-reporting/

Australian Securities and Investments Commission. (2013). ASICs Financial Reporting Surveillance Program | ASIC — Australian Securities and Investments Commission. Retrieved April 24, 2017, from http://asic.gov.au/regulatory-resources/financial-reporting-and-audit/directors-and-financial-reporting/asics-financial-reporting-surveillance-program/

CFA Institute Centre for Financial Market Integrity. (2007). A Comprehensive Business Reporting Model: Financial Reporting for Investors. Retrieved April 24, 2017, from http://www.cfapubs.org/doi/pdf/10.2469/ccb.v2007.n6.4818

Ernst & Young. (2011). SEC Comments and Trends: An analysis of current reporting issues. Retrieved April 24, 2017, from http://www.ey.com/Publication/vwLUAssets/SECCommentsTrends_CC0334_October2011/$FILE/SECCommentsTrends_CC0334_October2011.pdf

Financial Reporting Council. (2014). FRC urges clarity in the reporting of complex supplier arrangements by retailers and other businesse. Retrieved April 24, 2017, from https://www.frc.org.uk/News-and-Events/FRC-Press/Press/2014/December/FRC-urges-clarity-in-the-reporting-of-complex-supp.aspx

ICAEW. (2011). Audit insights: corporate reporting Improving annual reports of listed companies. Retrieved April 24, 2017, from https://www.icaew.com/-/media/corporate/files/technical/audit-and-assurance/audit-and-assurance-faculty/publications/audit-insights/audit_insights_corporate_reporting-web-version.ashx?la=en

Lee, W. J. (2009). Modernization of the SEC Oil and Gas Reserves Reporting Requirements. SPE Annual Technical Conference and Exhibition, 6(4), 122-132.

PWC. (2016). Disclose in In the spotlight: Corporate reporting. Retrieved April 24, 2017, from http://disclose.pwc.ch/23/media/pdf/pwc_disclose_1601_e.pdf

Securities And Exchange Commission. (2015). Final Rule: Disclosure in Management’s Discussion and Analysis about Off-Balance Sheet Arrangements and Aggregate Contractual Obligations. Retrieved April 24, 2017, from https://www.sec.gov/rules/final/33-8182.htm