The Financial Reporting Disclosure Essay Example | Topics and Well Written Essays - 1250 words

The Financial Reporting Disclosure - Essay Example The financial reporting disclosure requirements and norms needs to respond according to the changes like breaking down of items in the report to providing more detailed disclosures of the items like disclosure of assumptions, sources of estimation, models used, alternative measurement bases etc. Hence in today’s world disclosures in the annual report have become the balancing item to provide a credible report. The auditors need to disclose the accounting policies used while preparing the report to enable the user of the report to understand the report comprehensively. Majority of these disclosures were derived from the accounting system. There are many types of disclosure which are important, but a majority of them was related to the numbers in the annual report. Discussion Answer 1 With increasing complexity of the financial reporting the financial statements now have to include a variety of disclosures in addition to the traditional disclosures. The following are the list of disclosures which have to be included in contemporary financial statements. Annual report now have to include description of the accounting policies which is adopted by the relevant entity so that it becomes easier to understand the line items of the financial statements and the accounting policies on which it is based upon. ... 43). The disclosure should include the judgements made in the process of applying the accounting policies and the reasons of choosing the above policies and decisions. For example the disclosure of material uncertainties as per the going concern basis of accounting is to be made. The disclosure includes description of internal processes like risk management policies and practices adopted by the company (Ott and Hardie, 1997, pp. 53-57). The firm has to disclose policies and the procedures adopted for managing their financial risks. Annual report includes estimation of sensitivity analysis disclosures. This disclosure helps the users to understand the variability measurements of the items in the annual report. For example the annual reports include the disclosure of value at risk. Annual report also has to include Objective based disclosure requirements like the objectives of the disclosure which is to be provided rather than any specific disclosure. Hence it is clear that such disclo sures in the financial statements are becoming important and forward-looking and it represents the new policies which every annual report has to maintain. Answer 2 There has been major impact of increased amount of disclosure by firms to the external users and to the company as well. It has made the task of communicating the complex business transactions to the investors challenging and has raised the concerns about how well the management can communicate to the interested users so that they can make an informed decision based on the report. U.S. Securities and Exchange Commission has criticized companies for making the annual report too complex for the small investors to understand.