Qualitative Traits of Financial Reports
Discuss about the Business Contemporary Environmental Accounting.
Financial reports are great importance when it comes to the organization and the consumers of the same information because it should possess the most qualitative traits of financial reports. Failure to which most of the decision made will be uninformed and may be misleading to both the shareholders and the organization as well. Therefore, it bits logic when the firm’s financial reports are in manner that they can generate information that is up to date and can be relied upon by any party that wants to make a decision based on them (Abdallah 10) Accountants, board members, and the top management should exercise due diligence and exercise high degree of competence while preparing the financial statements to make sure the information presented is accurate and free of any material misstatements and errors. In fact the verification and examination of the accounts on whether they portray a true and a fair view is an undertaking that auditors conduct to provide assurance that the reports were prepared in accordance to the IFRS and comply to the GAAP (Andrews 1516) Compliance mean that every accounting entry made is in agreement with the expectation of the public and the bodies governing the financial report of public organization listed in Australian Stock or Securities Exchange.
The essence of the assignment is to examine whether the annual reports for the selected companies comply with what is expected and propose recommendation on how the reporting can be done better. It is difficult to determine the quality of an annual report, however, the ability to understand, compare and draw a conclusion from a given report determines the quality of the report under question (Brigham et al. 45). There are three factors that determine the quality of a report: understandable, timeliness, comparability and verifiable against set criteria. However, the quality of a good report is determined by IASB. That is International Accounting Standards Body.
The report will focus on how Cabcharge Ltd has maintained its annual reports and disclosures made in regard to the information that is deemed to be high value to the users of the financial statements. The company deals with how payments can be made simpler through online platforms and that makes it outstanding. The firm has developed various mechanisms through which it can link booking with internet thus enabling payments (Brown et al. 31). Despite the regulatory hindrances in different markets, Cabcharge has managed to venture into new markets with an objective of getting customers’ wants the certainty of service in peak periods thus responding to the rising demand. The company declared that it had an intent of expanding to hire segment areas in FY2017. The analysis of the report focuses on the financial year 2016 and 2017.
Importance of Accurate Financial Reports for Decision-Making
It is a qualitative trait that relates to the annual reports and financial statement generated by the organizations. Relevance means that information published for users consumption must be of importance to the user of the statements (Chen et al. 2). Additionally, the information must speak to the organization in material terms. Any information in the statements should make sense to the final and immediate users of the financial statements to enhance decision making and ensure that all related parties make their decision as informed by the financial statements (Cheung & Lau 162) Irrelevance of the financial statements make the decision made by the organization and other shareholders to make poor and uninformed decision that may make them lose their investments in the organization. The relevance of the information is important even in attracting other potential investors who may be willing to invest in the firm. The decision can only be feasible only if the management has ensured that their information is communicating and making sense to the parties concerned. Failure to which the information will be rendered misleading and inaccurate for making informed decisions (Christensen 31). From the information provided Cabcharge has reported information which to a great degree is relevant for the users’ consumption and whose omission could have led to poor decisions. For example, the company did the report on key ratios of financial statements such EBITDA for the year 2016 and 2017. The omission of such statements means that the organization would fail to institute mechanisms upon which the Earnings before Interest Tax and Depreciation would not have come to the shareholder’s attention (Dymski 3). The disclosure of total revenue of 2016 and 2017 is enough to assert that much of information generated by the Cabcharge Company is relevant to the decision making of the firm as well as the shareholders and other stakeholders.
This refers to the ability to compare financial statements for the different reporting financial years. The comparability aspect helps the organization monitor whether the firm is operating well or it is operating on a declining trajectory. Noting differences between the firm’s financial years will help the company develop strategies’ on ways to reduce costs and boost their revenue (Guay et l. 13). The case is possible when the firm reports the financials for current year against the result for previous years. This will help shareholders establish trends in company performance and thus boosting their confidence when the company profits are increasing from one year to the other. The most interesting thing to note is that Cabcharge has been reporting its financials in a manner that it is comparable from one year to another. For example in the year 2016, the company statements of financials were reported against the 2015 financial results the same case applied to the year 2017 financials which were against the 2016 financials (Johnston & Petacchi 34). Through this one can tell the directions of the organizations over time. For example, in 2016 the company reported a revenue of 151.9 M Dollar while in 2016 it did report 168.8 M Dollar which is a decline in total revenues by 10.0%. The information is conclusive in nature and it may be an alarm to the management to devise mechanism upon which they can make strategies that will boost the firm’s revenue.
Factors Affecting the Quality of Annual Reports
The environmental disclosures for any organization can either be in qualitative or quantitative forms. With the dynamics in the reporting structure of the firms. There has been a rise in the need to report both quantitative and qualitative reports on how the firm is planning to maintain the environment green with an aim of making the environment green (Libby 42). Cabcharge report is narrative in nature and they dictate that they are working in an effort to ensure that they minimize or eliminate wastes products. The firm is not based in the manufacturing industry and thus no much carbon is produced by it. For example, the company follows the principle of reusing and recycling as it seeks to actively improve the systems and processes to minimize operation inefficiencies (Mohanty & Das 45).
The information presented on environmental disclosures is not adequate since it lacks a quantitative bit of the information and the process of financing the strategies the firm want to implement in order to improve environmental conservation has not been stated. The disclosures as they are may be misleading to the shareholders.
The company should improve it environmental disclosures by giving the financial disclosures on how much do they intend to spend on the environment and how are they planning to implement such strategies. The company to quote the accounting and reporting standards used in their annual reports to verify their compliance levels. The Auditors assurance should also be included in the annual report to enhance performance and ensure that everything runs as required by the policies and procedures.
Reporting in corporate accounting is a key issue that organizations need to focus and ensure more of quantitative reports are generated in comparison to qualitative reports. That is, both should support each other in order to generate conclusive and informed reports on various reporting issues regarding an organization. Otherwise, the reports will be inconclusive, incomplete and lack merits leading to poor decision making.
Pre-acquisition entries are key since they help the company know its financial position before it acquires the target organization and on the same note. The acquirer is in a position to gauge the extent by which the acquired company will affect the price, earning and dividends per share. After the acquisition, most shares tend to be diluted due to increasing controlling interest. The consolidated statements are key since they give a true picture of the company once the acquisition process is complete and the deal closed (Omoye and Annie for 10) However, caution must be taken while carrying out the pre-acquisition entries to avoid confusion. Prevents double counting of assets, equity and recognize any gain from the purchase
Cabcharge Ltd Annual Reports Analysis
Yes since the acquirer company has a right to a dividend already declared and thus is entitled to dividend from the acquired company (Schaltegger and Burritt 12). The effect will be that the acquirer is purchasing the dividend to be received in cash value. In considering the amount transferred should in two separate form in terms of immediate dividend received and consideration for the shares acquired by the acquirer. Most companies that engage in acquisition processes tend to be shareholders to the subsidiaries and thus they are in a better position to understand the operations of the organization better than any other entity (Scott 18).
Distinguishing pre and post-acquisition dividends is of not much importance because all dividends received before and after acquisition are recorded as income in profit and loss account since they are part investments made in the subsidiary company. Additionally, differentiating the two sets of dividend help the firm in noting the differences in terms of the ability of the acquirer to exercise management to the subsidiary in order to generate high profits. This will enhance comparability between the firm before acquisition and after acquisition (Suryanto 19). Therefore, therefore, it is prudent for the firm to have these two dividends recorded differently in order to promote the process of management and making sure the operations within the organization are affected as effectively as possible (Tepalagul & Lin 101).
In times when the subsidiary has recorded a goodwill, it is necessary for the acquirer to deduct the goodwill in its pre-acquisition entries to enhance the accuracies and the prudent concept of the accounting theory (Wahlen 3). Additionally, this will ensure that a true reflection of the firm’s operation has been reflected in the underlying consolidated accounts. Any goodwill in the books of the subsidiary does not qualify as an identifiable asset
The adjustment is required to show the net realizable value of the subsidiary and in the effect, it is deducted to in the consolidated statements after the acquisition. In the acquisition analysis, the consideration transferred is compared to the identifiable net assets of the subsidiary that are acquired. The net realizable value is added to the final accounts to record the value to which the acquirer has derived in acquiring the company’s assets (Warren & Jones). The adjustments are required to give a true picture of the firm’s operations and the extent to which the parent company can exercise the controlling interest.
Relevance of Financial Information for Users
The consolidation of accounts requires both pre and post-acquisition entries in order to understand how the company has operated ever since it was acquired and since its management has changed hands and oversight is provided by a completely different economic entity (Weygandt et al. 2).
Consolidation of accounts has to be dynamic in accounting world today and people keep on coming up with new ways of consolidating their accounts without focusing on standards set by the IASB and IFRS. The happening have been as a result of lack of proper oversight between the managing people and the managed and thus the process through which accounting books are closed and consolidation reports generated do not about to anything substantial other than shambles accounting. Most companies are not adhering to GAAP and thus there reporting tend to be skewed towards one end and may even lack a touch when it comes to the process of decision making. It is a call to every firm to foster accrual or cash accounting whichever works for the best.
References
Abdallah, A.A.J., 2014. The impact of using accounting information systems on the quality of financial statements submitted to the income and sales tax department In Jordan. European Scientific Journal, ESJ, 9(10).
Andrews, R., 2015. Vertical consolidation and financial sustainability: evidence from English local government. Environment and Planning C: Government and Policy, 33(6), pp.1518-1545.
Brigham, E.F., Ehrhardt, M.C., Nason, R.R., and Gessaroli, J., 2016. Financial Managment: Theory And Practice, Canadian Edition. Nelson Education.
Brown, L.D., Call, A.C., Clement, M.B. and Sharp, N.Y., 2015. Inside the “black box” of sell?side financial analysts. Journal of Accounting Research, 53(1), pp.1-47.
Chen, C.W., Collins, D.W., Kravet, T.D. and Mergenthaler, R.D., 2018. Financial statement comparability and the efficiency of acquisition decisions. Contemporary Accounting Research, 35(1), pp.164-202.
Cheung, E. and Lau, J., 2016. Readability of Notes to the Financial Statements and the Adoption of IFRS. Australian Accounting Review, 26(2), pp.162-176.
Christensen, H.B., Lee, E., Walker, M. and Zeng, C., 2015. Incentives or standards: What determines accounting quality changes around IFRS adoption?. European Accounting Review, 24(1), pp.31-61.
Dymski, G., 2016. The Bank Merger Wave: The Economic Causes and Social Consequences of Financial Consolidation: The Economic Causes and Social Consequences of Financial Consolidation. Routledge.
Guay, W., Samuels, D., and Taylor, D., 2016. Guiding through the fog: Financial statement complexity and voluntary disclosure. Journal of Accounting and Economics, 62(2-3), pp.234-269.
Johnston, R. and Petacchi, R., 2017. Regulatory oversight of financial reporting: Securities and Exchange Commission comment letters. Contemporary Accounting Research, 34(2), pp.1128-1155.
Libby, R., 2017. Accounting and human information processing. In The Routledge Companion to Behavioural Accounting Research (pp. 42-54). Routledge.
Mohanty, L. and Das, B., 2015. Pre and Post Merger Financial Analysis of Industry wise Firms in India: An Empirical Study. Vilakshan: The XIMB Journal of Management, 12(2).
Omoye, A.S. and Aniefor, S.J., 2016. Mergers and acquisitions: The trend in the business environment in Nigeria. Accounting and Finance Research, 5(2), p.10.
Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues, concepts, and practice. Routledge.
Scott, W.R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.
Suryanto, T., 2016. Audit Delay and Its Implication for Fraudulent Financial Reporting: A Study of Companies Listed in the Indonesian Stock Exchange. European Research Studies, 19(1), p.18.
Tepalagul, N. and Lin, L., 2015. Auditor independence and audit quality: A literature review. Journal of Accounting, Auditing & Finance, 30(1), pp.101-121.
Wahlen, J., Baginski, S. and Bradshaw, M., 2014. Financial reporting, financial statement analysis, and valuation. Nelson Education.
Warren, C.S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & managerial accounting. John Wiley & Sons
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
