Changing Requirements for Financial Statements Governments around the globe have

Question

Changing Requirements for Financial Statements

Governments around the globe have adopted localized regulations and laws pertaining to the reporting of financial statements. However, as a global economy evolves, standardization of these reports is becoming increasingly important. Investors and suppliers looking toward foreign companies as investment opportunities or business partners need to be able to rely on the fact that the information is not only accurate, but also prepared following a common set of procedures. In a response to the need for a comprehensive reporting model, the FASB and IASB proposed making changes to financial statements.

Using the FASB, the IASB website locate examples of the current and proposed formats of financial statements. Analyze how the two statements are derived from the conceptual framework. Be sure to compare (similarities and differences) both the formats and effectiveness of FASB's and IASB's (financial position) financial statements, statement of cash flows, and income statement. What insights or what conclusions can you draw based upon your comparison? Provide examples of the current and proposed formats to support your conclusions.

Explanation / Answer

How an entity presents information in its financial statements is vitally important because financial statements are a central feature of financial reporting—a principal means of communicating financial information to those outside the entity.

The IASB and the FASB initiated the joint project on financial statement presentation to address users’ concerns that existing requirements permit too many alternative types of presentation and that information in financial statements is highly aggregated and inconsistently presented, making it difficult to understand fully the relationship between an entity’s financial statements and its financial results.

The objective of the financial statement presentation project is to establish a global standard that will guide the organisation and presentation of information in the financial statements. The proposals developed in this project would directly affect how the management of an entity communicates financial statement information to the users of its financial statements, such as existing and potential equity investors, lenders and other creditors. The boards’ goal is to improve the usefulness of the information provided in an entity’s financial statements to help those users in their decision-making.

The following table illustrates the sections, categories and subcategory in each financial statement:

FINANCIAL STATEMENT PRESENTATION

Statement of financial position Statement of comprehensive income Statement of cash flows Business Section Business Section Buiness Section Operating Category Operating Category Operating Category Operating finance subcategory Operating finance subcategory Investing Category Investing Category Investing Category Financing section Financing section Financing section Debt category Debt category Equity category Multi-category transaction section Multi-category transaction section Income tax section Income tax section Income tax section Discontinued operation section Discontinued operation section, net of tax Discontinued operation section Other comprehensive income, net of tax

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