Faithful Representation
Discuss about the Textual Analysis in Accounting and Finance.
This is one characteristic of financial reporting and is capable of making different decision-making byte users .relevance requires the financial information to be related to an economic decision. If this two does not describe the information is very useless. Financial information should have the predictive value and the confirmatory value this assists to predict the future outcomes in the company (Elo et al. 2014).
The financial reports should show what purports to report are, it should explain what is happening and what happened .the report should be just and free of biasness. There are three characteristics of faithful representation, and that is: completeness, neutrality and should be free from errors (Libby 2017). This tells us that information should be complete, fair and no biasness, and there is no inaccurate information, or some are omitted. A faithful representation may help a company to conclude and for future reference in the company.
This is an essential characteristic in financial reporting this is you provide information to investors and also decision makers on time and should not be delayed because it will be not of any value and will delay the decisions to be made by either the investors. According to Terry Bowen, a finance director he says ones you get into the notes you have to be technically trained so that not to lead to misleading information. For people to get these financial reports, they have to be prepared to give correct decision making. For this to happen the financial statement should be delivered on time so that to enables the analyst to be trained and go through it and see whether it is the best framework for the institution and will it be reliable and relevant or could they understand it.
This is an essential tool in financial reports. It shows that the financial statements should be brief, clear and precise. These financial reports should also be comprehensible to the users. All the details in the financial report must be appropriately organized to ease understanding. The financial statements should have proper explanations this will make it more understandable. Illustrations can be used in the financial statements this will be very helpful to interpret whatever is happening in the statement. The use of bar graphs, pie chart or line graphs it will make it immensely more comfortable for users to understand the trends in the financial report. They can use these illustrations to compare to whatever has been happening in the organist ion and also give correct decision making in whatever they are doing.
Timeliness
The information must be well organized, and the procedures should well be listed. You can also write a summary of your financial statement as a conclusion to ease the understanding. All the events and all the transaction should be well written to avoid miscalculations and confusion in the report. Understandability does not mean that you omit the complex pieces because it is difficult to comprehend it should be included but in a well-organized manner and procedure.
Problems in understanding can be due to user’s inability or the information itself. For economic conclusions to be drawn from the financial statement, it is essential for one to understand clearly to give decision making that is reliable to the report. In paragraph three of the article, we see that they should be training so that people should go through the notes so as not to give misleading information but when the data is clear, concise and precise no need for this because you will automatically understand the statement (Hu, Percy and Yao 2015)
Comparability is the ability to stand useful over time and against the financial resources from other sources. When one is doing any financial reporting, it is beneficial to compare with the previous statements either annually, biannually or any amount of period you require. This comparison will help you conclude on the financial statement and brings about the correct decision making. It also helps to understand the progress of a company and the economic value of whatever business they are doing. This comparability will show the current situation of a company and it will either enable improvement of the financial statements in an organization.
For a company to get the comparable information, you should follow a uniform pattern as required by the IFRS and you adopt the same style will bring about consistency. If the remaining uniform is not reliable and relevant you can use other methods and ways to achieve the end products, this is especially needed when the standards in accounting have been changed .consistency makes it easier for the audience to understand and to make the analysis in the financial report. In the first paragraph, we see that the investors have to compare between companies to see whether to adopt the standards or to change it in a new one.
This theory is related to the welfare economics that gives a right to be regulated. The theory posits that the market has imperfect competition, asymmetrical information, and externalities that brings about failure but is corrected by the use of regulation. The regulators of the regulation should have full knowledge and enforcement to improve the social outcome and contribute to public involvement in the market (Henderson 2017). This theory seeks the protection and the benefit of the public at large. The regulations are made to favor the people but not the lawmakers themselves (Plummer and Patton 2015). These regulations bring about resource allocation in the market. The theory seeks to heal the burden that they have to face by the regulators (Higgins 2012).
Understandability
It was concluded that the government should not enact that regulation because this theory is incomplete. This is where the formation of public interest and the maximizing of the regulatory measures is lacking (Chauvey et al. 2015). There has been a market failure not because of the regulation but due to poor allocation of resources, competition, and inefficiency in the market area. Whether the regulation is effective or ineffective, or the regulators are taking advantage and benefitting from it leaving the public interest or are these regulations opted to create economic efficiency (Loughran and Mcdonald 2016)
This is a situation where the regulatory agencies come to be dominated by the industries that they were regulating, in this situation the public interest is ignored, and they focus on the industry interests (Plummer and Patton 2015). The capture theory is in two types that are materialistic and non-materialistic capture. Greedy is when one is based on the material itself, and this is viewed through bribery while nonmaterialistic is the regulators start thinking like the regulated industry and belief in their opinions (Grunig 2017).
It is also referred to as the private interest theories of control the arguments are set by the supply and demand, where the government is placed as the supply while the interested group as the hard choice. The industry is the ones who create the regulations that will benefit its members these regulations are made to reduce the running costs in the industry. The government could not allow the regulation to be established in this theory. This is because it would favor some groups at the expense of others (Henderson et al. 2015)
This will lead to misleading information maybe tie asset will be gaining or losing value as times passes this will be difficult to know the cost of an assets and hence will lead to wrong information in the financial statement. The company might lose its historical perspective (Hahn and Lülfs 2014). This will reduce the success of a business in various ways and limit its net profit due to the devaluation of the fair value. It will lead to an investor in satisfaction the impairment cost might go high than the asset value this will cost the investors see that they are wasting their resources and stay away from such companies.
The company will not review revaluation since they are few benefits and it is very unsound and it will affect the financial statements, and this will be so costly this will show stewardship of management that they are accountable of their resources (Zhang and Andrew 2014).
The decision not to revalue might cause an increase in the production cost and may affect the price at which the asset will be sold, and the profit margin will be high in the financial statement
This may cause a lot of decision making in the future if the economic and technology changes may affect the economic state of the company and will affect the future in financial statements.
References
Elo, S., Kääriäinen, M., Kanste, O., Pölkki, T., Utriainen, K. And Kyngäs, H., 2014. Qualitative content analysis: A focus on trustworthiness. Sage Open, 4(1), p.2158244014522633.
Grunig, J.E., 2017. Symmetrical presuppositions as a framework for public relations theory. In Public relations theory (pp. 17-44). Routledge.
Hahn, R. and Lülfs, R., 2014. Legitimizing negative aspects in GRI-oriented sustainability reporting: A qualitative analysis of corporate disclosure strategies. Journal of business ethics, 123(3), pp.401-420.
Chauvey, J. N., Giordano-Spring, S., Cho, C. H. and Patten, D. M., 2015. The normativity and legitimacy of CSR disclosure: Evidence from France. Journal of Business Ethics, 130(4), 789-803.
Henderson, K., 2017. Capture Theory & State Regulation of Animal Cruelt
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.
Higgins, R.C., 2012. Analysis for financial management. Mcgraw-Hill/Irwin.
Hu, F., Percy, M. and Yao, D., 2015. Asset revaluations and earnings management: Evidence from Australian companies. Corporate Ownership and Control, 13(1), 930-939.
Libby, R., 2017. Accounting and human information processing. In The Routledge Companion to Behavioural Accounting Research (pp. 42-54). Routledge.
Loughran, T. and mcdonald, B., 2016. Textual analysis in accounting and finance: A survey. Journal of Accounting Research, 54(4), pp.1187-1230.
Plummer, E. and Patton, T. K., 2015. Using financial statements to provide evidence on the fiscal sustainability of the states. Journal of Public Budgeting, Accounting & Financial Management, 27(2), 225-264.
Zhang, Y. and Andrew, J., 2014. Financialisation and the conceptual framework. Critical perspectives on accounting, 25(1), pp.17-26.
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