Introduction
Preventing failures in reporting financial information requires the development of quality financial reporting systems (Burns, 2006). Effective financial reporting system allows stakeholders to accurately evaluate the financial ratios and other information relevant to decision-making. Also, effective financial reporting clearly shows the value of the company. Even without the usual promotional activities, firms can easily invite investments through the precise figures presented in the financial report.
The systems used are critical because it serves as the framework used for the preparation. Also, the individuals taking part in the process has to develop some sense of honesty, responsibility, transparency, and accountability. The principles and guidelines have to be constantly evaluated and reviewed to determine their conformity to the changing demands of stakeholders. Institutions have to contribute their share to ensure that accounting practises remain basic and financial reporting is classified as accurate in form and in substance.
Corporate Reporting Policy
In the UK, the Financial Reporting Council (FRC) is tasked to develop policies related to financial reporting issues. The financial reporting standards are governed by the the UK Generally Accepted Accounting Principles (GAAP) (ICAEW, 2007). Aside from accounting standards, it also covers company laws. the UK is one of the earliest countries that adapted corporate reporting. The existence of the the UK GAAP is guided by the Companies Act of 1985. It is evident that the UK is bent on preventing firms from manipulating accounting figures.
The corporate reporting environment in the UK is similar to other progressive economies. It is one of the premier financial hubs in the world. the UK also houses some of the biggest companies in the world. Because the industries in the the UK are complex, there is a need to create flexible financial reporting systems. Aside from the guidelines, the UK has also established agencies to monitor corporate activities and reporting. Strict implementation of these policies is ensured. There have been some instances when reporting issues were determined. Firms have been investigated and punished for inaccurate corporate reporting.
After the UK joined the European Union, the corporate reporting methods were changed. But this happened in 2005 after the Union agreed to enact the International Financial Reporting Standards (IFRS) (IAS, 2005). Aside from the Union, the IFRS is used in other big economies in the world. Before the IFRS came to effect, only 350 companies in Europe use such reporting system. At present approximately 7,000 listed companies use the IFRS. In the UK, firms can either employ the the UK GAAP or IFRS. But listed the UK firms are required by the Union to strictly implement IFRS.
Companies in the UK were greatly affected by the transition. Next Company, for instance, has to provide additional financial statements. In 2005, Next Company submitted financial reports using both the UK GAAP and IFRS. It is expected that there were several modifications made when the two reports are compared. Based on the revised report made by Next Company there were changes in profits, earnings per share, and total assets. These are vital components in the firm’s financial statements.
The reporting method of Next Company highlighted several significant modifications. Changes in the recognition of lease and other payables were noticed. Fair value of certain assets was also subject to revisions. There were also changes in the assessment of some intangible assets of the firm. Next Company provided several explanations in the report. This is also one of the most important shifts made after adopting IFRS. The notes to the financial statements briefly explain the method in which the figures are extracted. This promotes transparency and better financial reporting.
Conclusion
The financial environment in the UK is one of the most dynamic in the world. It is bounded by both the UK GAAP and IFRS. These are solid financial systems built on transparency, accuracy, and responsibility. The corporate reporting process in the the UK is similar in most countries. Most of the difference can be observed in the use of the Fair Value, revenue recognition, and currency effect. The environment also allows other firms to choose their most preferred method. This year, however, firms trading in the Alternative Investment Market will use IFRS.
Financial reporting is one of the key elements that determine company success. It can also lead to a firm to failure because its complexities. The IFRS and the UK GAAP serve as the bases for financial reporting. Collaboration between the two systems is necessary. Otherwise, there will be several issues on the side of financial reporting. Despite the challenges, the the UK financial reporting environment remains competent. Further improvements will make it an accurate, responsible, and transparent system.
References
Burns, J. (2006). San Fernando Valley Business Journal. “Effective Financial Reporting System.”
The Institute of Charted Accountants in England and Wales, (2007), the UK GAAP. Web.
IAS Plus, (2005), An Overview of International Financing Reporting Standards. Web.
Next PLC, (2005), Restatement of Financial Informationunder International Financial Reporting Standards. Web.