Financial Reporting Appraisal Essay Example | Topics and Well Written Essays - 4500 words

Financial Reporting Appraisal - Essay Example Many authors have dealt with the issue of clarity and understand ability of the annual reports (Lee and Tweedie, 1975; Smith, 1992; Keane, 1977). In fact many authors emphasised the fact that shareholders tend to read the narrative part of the annual report which normally includes good news, rather than reading statutory part and usually investors make their investment decisions depending on those good news (Tauringana and Chong, 2004; Smith and Taffler, 1992). However In order to make an informed investment decision, an investor who is contemplating investment needs to understand both the potential rewards and the associated risks (IOSCO, 1995). The main aim of this report is to summarise what has been proposed so far about improvement in effectiveness of annual reports in shape of 11 models discussed in ICAEW report. A judgement criterion has also been prepared according to which the annual reports of three company Johnson Matthey plc, Smith and Nephew plc and Smiths Group plc will be analysed. An award will be granted to the Company, which has adopted most of these models in order to improve business reporting and serving the needs of the users. Problems addressed: With the changing business methods and environment the values playing important part in business has also changed. The label of assets has transformed from tangible to intangible assets. In this scenario it is become difficult for the users to analyse the future performance of the company. The companies mostly practise the old traditional accounting techniques according to which intangible assets such as knowledge brand etc are not included in the financial statements as assets. Although in today's business scenario it is important for the users to have complete knowledge of these intangible assets in order to undertake their decisions accordingly. Solution provided: The authors of the model proposed that in order to help the investors and users to evaluate the value of the company the information provided needs to be more transparent regarding the intangible assets as compare to the past. The model suggest that all the tangible and intangible assets need to be continuously, means used to their fair values and should be reported in order to provide the clear and transparent information. The model gives three dimensions to the information 1) Assets and their configuration represented by company. 2) Information on assets relating to external environment management process and value. 3) Time. The model suggests the businesses to reveal information about their mission, strategy, and business process and risk management. The model can best serve the purpose of today's users since it provides information in many segments, which can help the user to find out the information, related to him. The model is the best way to respond to the needs of openers and transparency, which will be the most attractive value generating forces in the future. Criterion no. 2: Hermes Principle: (ICAEW, p. 65) Problems