FINANCIAL REPORTING

Financial Reporting

Financial Reporting

Introduction

Economic Slowdown and mortgage crisis has created serious concerns for not only investors, but all the stakeholders including policy makers, government officials and financial institutions etc. The only way out for economies is to improve the transparency and accuracy of financial information. It will help rebuild investor's confidence and would make things easier for policy makers, and different economies as many countries were affected by the financial, and mortgage crisis.

The crisis and panic is into such an extent that even doubts have been raised on different accounting policies and their implications. There have been a lot of discussions in the recent past about changing accounting rules and regulations. The biggest factor behind such criticism is the fact that companies do not reveal complete and accurate information about their operations and worth, which creates enormous problems. The actual picture is quite different from what the financial statements of the company reveals. For the purpose, analyst says that fair-value accounting method must be abandoned, and transparency of the company's financial statement must be improved. In this paper, we will discuss the four major issues faced by the financial sector, which must be resolved in order to get things on the right track (Claessens, S., M. P. Dooley, and A. Warner, 1995).

Short Shrift to Capital Markets

Analysts have criticized the fact that assets are valued according to their market value, even the market for such assets have vanished. William Isac, the former chairman of the Federal Deposit Insurance Corp, had introduced the concept of valuing the asset on the basis of their market value. The decision forced companies to write down asset values, which led to equity destruction and bank's lending ability. After severe pressure from all the concerned parties, U.S the Financial Accounting Standards and Securities & Exchange Commission gave a ruling that if the market of assets do not exist or the asset is sold for fire-sale price, than it must be valued according to own judgment and financial models, instead of focusing on market value of the asset.

Paul Miller, an accounting professor at the University of Colorado says that companies have figured out the key to success. They know that taking care of their customers, supply chains and employee will eventually lead to good results for them. However, it is difficult for a financial institution to figure out how they can get out of trouble and crisis situations again and again. He argues that, in contrast to other companies, it is important for a financial institution to strive for improvement. He also complains that financial institutions keep the investors unaware of different facts and the real story, which creates problems. For example, if a company wants to improve its profitability to show a better picture to shareholder, it can switch from accelerated to a straight line depreciation method or it can reduce and cut down training expenses etc. According to accounting standards, this is legitimate, but it may show an inaccurate picture to ...