General Purpose Financial Statements Research Articles

The application of an accounting standard for SMEs

Small and medium-sized companies have a very important position in the European Union (EU) economy, mainly in the area of employment. Their activities in the internal market are limited by a great deal of obstacles. The most important obstacles are the different national accounting and tax systems. At present, it is obvious that a certain degree of accounting and tax harmonisation has to take place. International Financial Reporting Standards (IFRS) for Small- and Medium-sized Enterprises (SMEs) is designed to apply to the general-purpose harmonised financial statements of all profit-oriented SMEs. General-purpose financial statements are directed toward the common information needs (an entity's financial position, performance, cash flow) of a wide range of users (shareholders, creditors, employees). Determining taxable income requires special-purpose financial statements designed to comply with the tax laws and regulations in a particular jurisdiction. An entity's taxable income is defined by the laws and regulations of the country or other jurisdictions in which it is domiciled. Tax authorities are also important external users of the financial statements of SMEs. Profit or loss recognised under IFRS for SMEs could be a starting point for determining taxable income.

AN EXAMINATION OF THE CONTENT OF COMMUNITY FINANCIAL REPORTS IN QUEENSLAND LOCAL GOVERNMENT AUTHORITIES

Annual reports, including general purpose financial statements, have been adopted as a key mechanism by which public sector entities discharge their accountability. However, there is concern about the complexity of public sector general purpose financial statements and consequently their effectiveness as an accountability mechanism. In Australia, the Queensland government has moved to address this issue in local government authorities by introducing a Community Financial Report as a means of simplifying the financial statements. A feature of this initiative was the lack of prescription given to local government authorities in the preparation of this report. This paper examines the form and content included in Community Financial Reports and also uses a disclosure index to determine the level of disclosure in the reports. The results of this research show that the form and content of the Community Financial Reports varied considerably. There was no definitive style, with each report being unique. The disclosure index revealed low levels of disclosure by local government authorities in the first year of the report as well as a lack of analysis of the Statements of Financial Performance, Position and Cash Flows. As well, there was a significant difference in the disclosures made by rural local government authorities compared with urban local government authorities. The results of this research will be of interest to local government authorities and local government regulators as they aim to provide useful, understandable information for stakeholders.

Financial Communication Through The Financial Statements According To The International Accounting Settlements

The major financial statements are designed to provide a picture of theoverall financial position and performance of the business. In order to provide thisoverall picture, the accounting system will normally produce five major financialreports on a regular recurring basis. These financial statements, taken together,provide on overall picture of the financial health of the business. It says that who hasthe information has the power, and the way that it gets from the receiver iscommunication. From an accounting point of view, the communication is representedby financial statements, witch are regulated by IASB through IAS 1. Its objective is toprescribe the basis for presentation of general purpose financial statements, to ensurecomparability both with the entity’s financial statements of previous periods and withthe financial statements of other entities.

Financial Performance of Privatized State Owned Enterprises (SOEs) in Vietnam

The literature on public financial management reform has devoted comparatively little attention to the detail and effect of reform process implementation in developing economies. This study contributes to an understanding of this phenomenon by examining the impact of privatisation on a sample of previously state owned enterprises in Vietnam. Using a detailed, financially focused methodology and drawing on data sourced from audited general purpose financial statements, our analysis suggests evidence of material variation in financial performance and position post privatisation compared to the position observed immediately prior to privatisation. Specifically, our data suggests that after being privatized, firms generally exhibit reductions in profitability, improved liquidity, some degree of improvement in working capital management, an increase in financial leverage accompanied by a higher degree of solvency risk and greater calls on cash resources for the purpose of funding capital expenditure. Our results assist with understanding the impact of privatisation as a reform technique in developing economies, and may assist policy makers and managers better target areas of likely risk, during the process of transition from public to private ownership.

Discussion of “Is financial reporting shaped by equity markets or debt markets? An international study of timeliness and conservatism”

Using country-level data, Ball et al. (2008, Review of Accounting Studies) (BRS hereafter) demonstrate that debt-market (equity-market) size is (is not) positively associated with measures of timely loss recognition and asymmetric timely loss recognition. They argue that these results imply that debt holders—not equity holders—are the primary source of demand for timely accounting reports. They also argue that their results support the notion that the “costly contracting” school of thought is more descriptive than the “value relevance” perspective and that general purpose financial statements are of questionable value. I argue that, while their results are novel and relevant to both academia and practice, their conclusions are premature for at least three reasons (1) their research design is inefficient and may lead to biased inferences, (2) additional evidence on the relation between timeliness and the benefits of leverage as well as debt-instrument attributes is needed, and (3) factors other than timeliness also impact the quality of financial reporting and thus may be of value to equity holders or other interested parties.

New Directions of Financial Reporting Within Global Accounting Standards for Small and Medium-Sized Entities

The International Accounting Standards Board (IASB) is currently working on a project to develop accounting standards suitable for entities that (a) do not have public accountability and (b) publish general purpose financial statements for external users. This article presents the current status of IASB activity on this new direction of financial reporting. Our study has as key objectives to review the extant of academic literature and to analyze, based on the questionnaire conducted by IASB, the impact of a set of new IFRSs for small and medium entities (SMEs) on practitioners and on professional organizations. The literature review unearthed a variety of prior studies on SMEs. Currently, in most jurisdictions SMEs are subject to relaxed regulation as determined at the national level, taking on board specific economic and local conditions. However, the increasing significance of SMEs in the global economy, the burden/inapplicability of full International Financial Reporting Standards (IFRS) and the potent arguments in favour of differential reporting have drawn the attention of international regulators and given rise to the proposed new regulatory regimes for SMEs. We briefly present the content of IASB recent SME exposure draft and, as conclusion we comment the answers received at the questionnaire conducted and their influence on the requirements of the new SME reporting standards.

Does the GAAP-shoe fit not-for-profit organisations or is it causing them blisters?

Generally Accepted Accounting Practice (GAAP), which comprises International Financial Reporting Standards (IFRSs), has been designed to apply to the general purpose financial statements of all profit-oriented entities, and especially those competing in the international capital markets. On the other hand, not-for-profit organisations exhibit unique characteristics, different from businesses. The nature of not-for-profit organizations means that GAAP (IFRS) is not applicable to them. Small and medium entities (SMEs) and governmental institutions also exhibit unique characteristics and specific accounting standards were developed to meet their specific needs. In South Africa there are no accounting standards that specifically apply to not-for-profit organisations and that take their specific reporting needs into account. This article examines whether GAAP is applicable to not-for-profit organisations, and whether its application adds value to these organisations. The article focuses on the nature of not-for-profit organisations and its impact on accounting standards, discusses the applicability of GAAP and highlights some problems experienced when applying GAAP.

Accounting Conservatism in the European Union: The Influence of Institutions and Incentives

In this study we investigate whether the importance of accounting information in contracting and communication with shareholders and creditors affects earnings timeliness in publicly disclosed general purpose financial statements. To operationalize the relationship between timeliness demands and the importance of accounting information to shareholders and creditors, we compare the (asymmetry in) earnings timeliness of public firms with that of private firms. We attribute public versus private firm differences in timeliness to shareholders’ demands when a country’s institutions provide strong investor protection. Similarly, we attribute these differences to creditors’ demands when the institutions provide strong creditor protection. Our analysis of public and private firms in thirteen Western European countries suggests that creditors and shareholders have different timeliness demands. In particular, we find that the public versus private firm difference in asymmetric timeliness is not associated with a country’s degree of investor protection but positively associated with a country’s degree of creditor protection. The results further suggest that shareholders demand symmetric rather than asymmetric timeliness. An important implication of our study is that general purpose financial statements are responsive to creditors’ reporting demands, which contrasts with the idea that these - primarily private - creditors would use special purpose reports.

Accounting for public heritage facilities – assets or liabilities of the government?

Public heritage facilities – national parks, art galleries, museums and so on – are now required by professional accounting standards in Australia to be valued and included in government general purpose financial statements as assets. This study challenges the appropriateness of such an accounting treatment in relation to the SAC4 definition of assets and the purported usefulness of the information. Instead it is argued that these facilities are public goods, and that commercial accounting principles should not be applied to them. The article explains the nature and significance of public goods and how they differ from private goods. It explains why commercial accounting principles are irrelevant for public heritage facilities because their objectives are social rather than financial and why commercial valuations are irrelevant and unreliable if applied to them. Finally, it is contended that the facilities are assets held in trust for the nation by government and hence should not be included in its general purpose financial reports.

DEVELOPING A CONCEPTUAL FRAMEWORK FOR CENTRAL GOVERNMENT FINANCIAL REPORTING: INTERMEDIATE USERS AND INDIRECT CONTROL

This paper argues that the search for external users of public sector financial reports, and for decisions for which users might plausibly need information that could feasibly be provided in general purpose financial statements, has failed empirically and theoretically. The implications for the construction of a conceptual framework for public sector financial reporting are examined. It is suggested that‘intermediate’users operating in an environment of‘indirect control’might form an appropriate basis for a conceptual framework. Some tentative observations about such a framework are made and its application in accounting for central government agencies is explored.

A Test Application of the Feasibility of Market Based Measures in Accounting

Those who advocate the use of values' in accounting seem almost exclusively concerned with basic concepts, that is, with the function, purpose, or objective of accounting. Of those opposed to the current value approach, some are opposed on conceptual grounds, but most opposition is based on the feasibility question, i.e., whether suitable measures of current value can actually be made. The goal(s) of accounting and the attributes which ought to be measured and reported have been well discussed in the literature. The American Accounting Association2 concludes that current values should be included as one kind of information presented in multi-valued general purpose financial statements. Edwards and Bell3 advocate the use of present replacement cost as the basis for determining income and financial position. Chambers4 advocates the market selling price of assets as the appropriate measure.