Annual Reports Are An Outdated Mode Of Informing Users Of A Company

Question: Discuss about the Annual Reports Are An Outdated Mode Of Informing Users Regarding The Activities Of A Company. Answer: The essay revolves around the discussion provided in the article relating to the usefulness of the annual report. Further, own reviews have been given regarding the same study. The primary emphasis has been made on revealing the poor quality of pastaccounting information provided in financial statements by restating the information of previous years. It has been observed in many of the firms in China, that companies have maintained their profits below the line through inappropriate recognising loss and encouraging survival rather than supporting refinancing goals (Wang Xia and Wu Min, 2011). Further, it has also been assessed that investors have started taking a decision relating to companies on the basis of information provided in current year rather than reflecting the concurrently the financial reporting of past years. Efficient capital markets reward high-quality financial reporting which facilitates appropriate allocation of corporate capital and provide assistance in decision m aking for investors. The changes were further made in the financial statements and corrected later; the same impact on the profit and loss of stock market as well as concern towards the information provided in the financial statements. It was analysed in the research by U.S. that after restating the figures in the financial statement; investors relied less on the data available in the annual report and it also affected the creditability of a firms future financial reports (Hope, Thomas and Vyas, 2013). An effort has been made, to explain the impact on the financial statement in case the figures are corrected in a current year financial statement and not in a previous year financial statement in the report (Ghazali, 2011). It is because; the overall cumulative effect would be adjusted to the opening balance of retained earnings and another account which are affected due to same. By way of GAAP and IFRS require specifying relating to restatement rather than earning restatement. It is also analysed thatacco unting standard requires detail explanation regarding the reason of restatement of figures but a small quote has been provided in the footnotes regarding them in financial statements (Lys, Naughton Wang, 2015). The research in China has majorly emphasised on earning management which is related to restatement issue. Many organisations manage accrualaccounting in order to boost up their earnings during the process of financial packaging (Wang Xia and Wu Min, 2011). Further, it has also been observed that capital resources might have appropriately allocated in case management of earning would have examined more carefully. Analysis has also been made in the report regarding the level of information available in the annual report in case of listed companies. An effective effort has been made to design and implement financial regulation relating to transparency in the information accessible in the financial statements (Weil, Schipper, and Francis, 2013). It is because; Vietnamese authorities took an initiate to improve the manner of providing information in the financial statements through specifically providing detail disclosure. The same step provides assistance to the investors to understand the affairs of the company in a more appropriate manner which resulted in the reduction in existing gap between management and investors (Crowther, 2016). The same resulted in providing useful information for the State agencies to in assessing, reviewing and developing disclosure requirement in future. An approach relating to making an alteration in the produce items which is a reliable and appropriate measure for determining the disclosure level in a particular research environment (Alzarouni, Aljifri and Tahir, 2011). A study regarding the relationship between corporate governance and voluntary disclosure in the annual report has also been provided in the report. As the principles of corporate governance are based on the objectives of OECD, and thus the focus was made on developing the disclosure index. The report depicts that the data available in the annual report is dependent on the subjective items in case of independent research. Further, the analysis is done on the basis of previous researches which are relating to provisions of state and corporate governance principles of OECD for the purpose of developing an index for the research (Hope, Thomas and Vyas, 2013). The analysis has been made by considering self-constructed index, but in case the content of index is different; the possibility exists that result might be differentiated. Further, an attempt is made to provide importance on the disclosures which have been contained in the annual report. Usefulness of financial report has been analysed for examining whether current practices satisfied by the disclosure policies specifically in UAE. In this report, an effort has been made to ascertain the extent to which the users are satisfied with these disclosures that are available in financial statements (Elliott, Fanning Peecher, 2016). Further, for exploring whether the requirements of the users have been fulfilled with the information which has been provided in the disclosure. It has been analysed that through taking a survey of several companies of UAE; and the result which was indicated were also appropriate as a maximum of enterprises provided information in the annual report (Alzarouni, Aljifri, K., and Tahir, 2011). The main issue which was faced by the investor that delays in information in the availability of annual report and non-accessibility of financial reports. It is because; information provided in annual report generally contains historical financial facts which are not viable for making future decisions on a rational basis. The external and internal factors which assess the decision of an investor are evaluated properly for ascertaining the manner in which they impact their behaviour (Baker and Haslem, 2015). Consequently, the solely annual report does not make sense to stakeholders due to which they are required information from other sources as well. However, these issues are coped up companies by adding facts and figures about their future financial plans and performance so better forecasting can be done by stakeholders. In addition to this, companies are bound to provide interim reports to cover the gap of a financial year. With this report, stakeholders are able to get information on the ongoing performance of the company to collect viable facts for decision making (Weil, Schipper, and Francis, 2013). The viability of annual reports is continuously enhancing by applying ethics and governance of corporate reporting to ensure that stakeholders are able to assess accurate information in a timely manner for making rational decisions in their interest (Hope, Thomas and Vyas, 2013). However, this not resolve entire issues related to annual reports but professional accounting bodies are doing their best to cope with the existing issues by providing reliable solutions to stakeholders. Financial statements are used to evaluate the key facts relating to performance and disposition of business and thus have a significant influence the decision. Financial statements are the key component in making investment decisions. It can be concluded that all the journal has emphasised on the manner in which the in which accounting policies and disclosures affect the decision of an investor relating to the amount of investment and value of shares of a particular company. Further, it can be said that the information available in the annual report is usable only in case accounting policies has been appropriately followed, and the necessary required information for the investors have been provided in an appropriate manner. It depends on the individual company; but as it is compulsory for listed companies to follow accounting standards and to make appropriate disclosure thus the same ensure the investors that relevant and reliable information has been provided to them. References Alzarouni, A., Aljifri, K., Ng, C and Tahir, M, I. (2011). The usefulness of corporate financial reports: Evidence from the United Arab Emirates. Accounting Taxation, Vol. 3 No. 2, pp. 17-37. Baker, H. K., and Haslem, J. A. (2015). Information needs of individual investors. Crowther, D. (2016). A social critique of corporate reporting: Semiotics and web-based integrated reporting. Routledge. Elliott, W. B., Fanning, K., Peecher, M. E. (2016). Do Investors Value Financial Reporting Quality Beyond Estimated Fundamental Value? And, Can Better Audit Reports Unlock This Value. Working paper, University of Illinois at Urbana-Champaign. Ghazali, N.A.M. (2010). The importance and usefulness of corporate annual reports in Malaysia. GadjahMada International Journal of Business, Vol. 12 No. 1, pp. 31-54. Hope, O.K., Thomas, W.B. and Vyas, D., (2013). Financial reporting quality of US private and public firms. The Accounting Review, Vol. 88 No. 5, pp.1715-1742. Lys, T., Naughton, J. P., Wang, C. (2015). Signaling through corporate accountability reporting. Journal of Accounting and Economics, Vol. 60 No. 1, pp. 56-72. Wang Xia and Wu Min. (2011). The quality of financial reporting in China: An examination from an accounting restatement perspective. China Journal of Accounting Research, Vol. 4. pp. 167-196. Weil, R. L., Schipper, K., and Francis, J. (2013). Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.