INTEGRITY OF FINANCIAL REPORTING

Integrity of Financial Reporting

Integrity of Financial Reporting

Introduction

The purpose of this paper is to discuss recent developments in the statistical utilization of accounting data by the federal government. No one can ignore the importance of transparency in financial reporting, because people make big decisions regarding the investments based on financial reporting. Every investor wishes that he should be able to get more, better and transparent information about the financial data of the company.

In particular, attention will be focused on the statistical utilization of accounting information for what may be called 'top-policy' purposes. Most accountants are familiar to some extent with the utilization of accounting data by various federal agencies for direct administrative purposes. In the administration of tax laws and for regulatory bodies, accounting data have proved indispensable for handling individual cases. Moreover, most accountants are probably familiar with the fact that individual case information is frequently compiled into statistical information as a means of orienting agency policy, setting standards, and serving as a basis for recommendations to the Congress.

At times information collected for administrative purposes is combined with data from other sources for purposes of analysis and recommendations looking toward the formulation of policies for grappling with problems affecting large sections of the economy. Frequently it has been necessary to gather supplementary information beyond that required and already secured for administrative purposes. In some cases the statistics which could be prepared from the files of administrative agencies have proved so unsatisfactory that it has been necessary to devise a statistical collection which would of itself serve the purpose on hand. Such statistical collections have, for the most part, been confined to a single collection designed to aid in the solution of a particular problem.

With the assumption of federal responsibility for maintaining full and stable employment, the growth of interest in promoting and encouraging small business, and the attempt to place the antimonopoly programs on a more systematic basis than reliance on complaints, it has become necessary to provide for continuing and current statistics on business operations. Federal activities in this direction have grown rapidly since the war. (Cooper, 1996, 14)

Discussion

There have been three major defects in our knowledge of business financial operations: (1) lack of currency; (2) lack of coverage (a) of important items and (b) of important areas; and (3) lack of reliability in data secured. Each of these items must be viewed in terms of economics, accounting, and statistics before criteria of satisfactoriness can be established—and achieved. Administrative feasibility, both from the point view of the collecting agencies and the suppliers of information must, of course, weigh heavily in all program considerations. (Churchman, 1971, 32)

The deficiencies in our knowledge of what has been and is happening in the small business area have been particularly conspicuous and difficult to repair: The number of organizations to be covered is large and diverse; the high birth and death rates of small business result in a constantly shifting universe which makes comparisons and interpretations of trends difficult; ...