The Advantages and Disadvantages of Corporate Financial Reporting

Corporate Financial Reporting is part of corporate reporting that consists of financial statements and accompanying notes that are prepared in conformity with Generally Accepted Accounting Principles (GAAP). The financial statements are summaries of business transactions during the financial year of the corporation. The business world has many forms of organizations ranging from the for profit sole proprietorship, partnership and incorporated businesses with limited liability to the not for profit organizations whose existence is not mainly driven by financial gain.

Regulations that govern the preparation of financial statements largely apply only to the incorporated entities. This has given rise to accounting standards setting bodies and legal provisions that form the frameworks used when preparing the financial statements. The process of preparing the reports in accordance with the GAAPs and legal requirements presents advantages and disadvantages to the organizations and to other interested groups. The International Financial Reporting Standards are increasingly being adopted by many national accounting standards setting bodies leading the way to a single set of accounting standards all over the world. It is therefore worthwhile to look at the advantages and disadvantages of financial reporting to create an awareness of the complexities that corporations and accounting professionals contend with.

THE ADVANTAGES

A number of advantages of corporate financial reporting can be enumerated and perhaps among the most important is that organizations are able to compare their individual performance with others in the same industry or line of business. This is because the established principles, standards and regulations ensure that there is a benchmark to be followed in the preparation of financial reports. Recognition of income, expense, assets and liabilities is standardized by the existing framework and any deviation can be countered with disciplinary or legal action. Organizations strive to prepare their financial statements to closely match the set frameworks as much as possible. In some countries for example Kenya, this has been translated into an annual competition (the fire award) where companies performance in this area is assessed by professional bodies including the national accounting professionals body with the aim of awarding the company with the best prepared financial statements. This in turn promotes staff and professional development which is a desirable aspect in the growth and wealth creation of the corporate organizations.

Investors and owners of companies in jurisdictions where corporate financial reporting follows strong established and clear frameworks can make the appropriate investment decisions. Corporate reporting in this case enhances the development of understanding of the activities of the companies and at the same time keeps the companies themselves on their toes as the wider society is well-informed of the expected reporting standards. This also acts as an incentive to managers to perform at their best and to institute control measures that aid the organization to comply with the frameworks.

Requirements of corporate financial reporting lead to timely preparation of financial reports. This is desirable to the stakeholders who may be more interested in the organizations immediate past rather than wait for a long time before the outcome of their input is known. When financial reports are prepared and published within the stipulated time, it is possible for necessary actions to be taken to correct any anomalies that may have led to undesirable outcomes. In a more serious case where a material error happens to be discovered, it can be corrected and the necessary measures taken to avoid a repeat of such occurrences.

IFRS give room for flexibility as they are based on principles rather than rules. As principles are based on value, corporations can adopt the standards that best suit their circumstances as long as fair value is adequately reported. This also encourages professional development as accounting standards setting requires qualified academics who can develop the required standards after lengthy and rigorous discussions and considerations to come to a consensus.

Overall, corporate financial reporting acts as a control measure as management, owners, employees, customers, creditors and the government are dependent on the reports in their decision-making. For instance the government in taxation of companies relies at the outset on the financial reports prepared and examined by qualified public or certified professionals. Trends on the growth of the companies can also be quickly determined by comparing sets of reports for different periods.

THE DISADVANTAGES

Corporate financial reporting does not bring desirable results only. There are some undesirable outcomes that should be mitigated against. The consideration of cost guides many companies in their operation. In preparing corporate financial reports in accordance with laid down standards and rules, expertise is required and the company has to engage highly qualified professionals for this task. The fee payments to qualified professionals can be prohibiting especially to small companies controlled closely by their owner managers. Compared to larger companies the small entities do not have adequate resources to implement adoption of the standards or even to train or employ qualified staff. In many instances such small and medium enterprises (SMEs) are tempted to forgo compliance with certain aspects of the standards or rules leading to problems with regulatory bodies including the government.

Freedom to adopt standards that suit the particular circumstances of the company leads to manipulation of reports. Disclosure of important information is in jeopardy as there is no legal enforcement for implementing the standards. Even where the government imposes legal obligations on what financial reports are to be prepared, there are still loopholes that can arise especially when the accounting standards and the legal stipulations are not in conformity in some areas.

For multinational companies, there are challenges in preparing their consolidated financial reports especially where operations are in countries with different accounting standards and legal regimes. There are also other challenges in dealing with for instance exchange rates, interest rates and transfer pricing where treatment of such aspects may be considered differently in different countries. Taxation and existence or non-existence of dual taxation treaties also poses another challenge.

CONCLUSION

It can be concluded that corporate financial reporting is essential and the gains from following accounting standards based on principles far outweigh the disadvantages as freedom to prepare reports in whatever way organizations deem appropriate may lead to financial chaos.

Source by Peter K Maina

A Brief Introduction to Financial Jobs

Even during the current recession, financial powerhouses like the City of London, or Wall Street, have continued to provide motivated and skilled workers in financial jobs with a quality of life that’s unmatched in most other sectors.

That’s down to one thing. The earning power of financial sector and banking jobs.

So it’s no surprise that even more promising young graduates are seeking to enter the financial sector. But they’re in need of guidance, which is why we’ve provided this brief introduction to financial sector, investment banking and wealth management jobs.

What is a Financial Sector Job?

Simply put, a financial sector job is any position involved in business or corporate finance. Banking, investment, commodities and sales trading positions all fall under the umbrella of finance jobs – making it an incredibly broad and attractive market for prospective employees.

But it’s this attractiveness which makes the sector so competitive for first-time applicants. Which is why it’s never been more important for them to secure the correct qualifications, and seek out the right advice on finding positions.

What Qualifications Will You Need?

Jobs in the financial sector can be extremely well-paid, and as such, competition for jobs is always fierce. So having the skills and qualifications to stand out from the crowd is crucial if you want to get ahead of the competition and secure the position you need.

A large number of finance industry workers have an MBA (Master of Business Administration) degree, which immediately marks them out to employers – but even this is not enough. Professional qualifications and licenses are a must if you’re aiming for one of the most lucrative jobs, and they include the following designations:

Chartered Financial Analyst (CFA)

Certified Financial Planner (CFP)

Certified Public Accountant (CPA)

All of these designations can be earned by completing approved programmes, either at a University while you are studying, or later in life backed by your employer.

Without additional qualifications, your career can stutter – so if you’ve got more than four years’ experience and you’re looking to move up the corporate ladder, you will seriously need to consider additional qualifications.

Entry level positions will demand much less in the way of qualifications (you should still pursue an MBA as a minimum) – but as we’re about to discover, they also pay far less.

How Much Can You Expect to Earn?

The easy answer to this commonly asked question would be this: “How long is a piece of string”?

But, while correct, that answer wouldn’t do justice to the earning power commanded by those who’ve achieved enough to rise to the top of the financial sector.

While junior-level candidates will find themselves on less lucrative, if still very competitive salaries – a junior quantitative analyst, for example, will earn around £250 per day with some companies – those at the top of the field will find that demand for their skill and experience translates to very rewarding wages.

It’s not unusual for financial sector experts to earn a six-figure salary, providing they have the right contacts. Which is why everyone from graduates to corporate level experts make use of outside help.

Moving Forward – Finding a Financial Job

Breaking into the field of corporate finance can be a tough task for people without the right guidance and assistance. That’s why it’s highly recommended that you enlist the help of a recruiter or recruitment agency.

A professional, trustworthy recruiter will guide you every step of the way – from basic preparation, interview technique and tailoring your CV, to securing interviews at some of your area’s leading companies and organisations. And if you’ve been there, seen it and done it before, their contacts and know-how could be the difference between a five and six figure contract.

So what’s holding you back? If the world of corporate finance is where you see your future, search Google and find yourself a recruitment expert. You’ll be in your new job before you know it.

Source by Andrew Nattan

Accounting Finance – The Heart of Any Successful Business

At the core of any successful business is a well organized management. Financial accounting is a very important tool for business. Aside from knowing strategies such as bookkeeping, marketing, advertising and production, a good and stable business must also have a competent system for accounting finance.

Whether you like it or not, accounting finance is one thing you cannot dispense with in the world of business. It is a very important tool in determining where and how exactly your money is being spent. Also, it is most important in terms of taxes and other pecuniary obligations.

Good Accounting Means Good Business

Accounting ensures you how much you have, how much you owe, and helpful in assessing the value of your business. Are you generating any profit or operating at a lost? Accounting records will answer your questions. Accounting serves as the proper recording tool of the financial status of any business. Fiscal dealings are best kept right on track with an effective accounting department.

A good accounting system within one’s business is a great help in making business decisions. This also shows how credible you are with other companies. Accounting does not only place you in a very knowledgeable stance, but it gives you that confidence by being armed with the facts and figures revolving around your business. Knowledge is power.

Professional Accountants

It is to your advantage if you are an accountant by profession. But if not, you can still do your own accounting if you are operating a small-scale business. However, if you have a big company it is advisable to hire a professional accountant especially if you do not have the time and the skill for it. You must realize that there are various strategies in keeping various kinds of accounts in a business.

It is also best to check the accounting firm’s competence, credibility and confidentiality issues. It is very important that in any business, you would be able to trust your accountant with sensitive information, including profits and sources of income your business is accumulating.

Accounting standards you should know

To the untrained and unsuspecting eye, accounting principles might seem hard, intimidating and complicated, but it is in reality very simple if you get past all those figures. All you have to know in accounting are these: Accounts are always divided into three types, namely assets, liabilities and equity. Each account is unique and simple yet forms part of the very foundation your business is operating on.

“T” accounts can be managed by drawing a T like figure with a left and right section divided by a vertical line. On the left side, you can place all your debits or the so called assets. On the other side, you can list down all your liabilities or what we call credits.

The general rule is that for every liability, there must also be a corresponding asset so that a balance will be achieved. If the credit is more than your debit then perhaps you are already generating a loss in your business.

Mastering these simple accounting principles will help you in determining where your business stands. You will also be more confident in presenting these financial records even if federal agents pay you a visit for an audit. GP

Source by Yossarian Smythe