NARRATIVE REPORTING IN FINANCIAL ACCOUNTING

Narrative Reporting in Financial Accounting

Table of Contents

Narrative reporting in financial accounting1

Introduction1

Discussion1

Criticism and problems in corporate disclosure and information5

Regulatory framework7

Legislative requirement7

Non-statutory mandatory requirements8

Non-mandatory provisions8

Users of corporate reports9

Conclusion10

References13

Narrative reporting in financial accounting

Introduction

Sharing and exposing company information is important in company's law. Information of a company is delivered in various outlines that include news reports, written reports, advertising and internet. There are different users of these reports, mainly of large public listed companies (Villiers, 2006, pp. 1).

The preparation and purpose of financial accounting is to provide information of the company to different sources for company analysis and information. Most of the information is based on company financial statements. Narrative reports are based on financial reports of a limited company with an explanation of text for better understanding of company position. For large companies, there are a huge number of users of financial information of the company, with varying needs and preferences, sometimes impossible to meet. Therefore, financial statements are used as general purpose document to meet the needs of all users (Bendrey et. al, 2003, pp. 38).

Discussion

Sharing and exposing company information is important in company's law. Information of a company is delivered in various outlines that include news reports, written reports, advertising and internet. There are different users of these reports, mainly of large public listed companies (Villiers, 2006, pp. 1).

Along with the focus on disclosure of information, an uncertainty regarding ability and effectiveness of disclosure procedure in UK. There is criticism and consequences majorly on cost implications regarding disclosure system, and limitations in method of clearly assessment of company performance, unreliable verification system, disclosing information to meet user's requirement, and reaction of users to disclosed information (Villiers, 2006, pp. 1).

In UK, there are different levels of disclosure system. There is a strong level of legal requirement of disclosure system for companies. Along with these obligations, there are different principles and laws depending on disclosure; such as promoters of the company and director's responsibilities are associated with disclosure, also disclosure is an obligation for a company with which it is associated with, there might be an obligation in industrial rule for disclosure, and company discloses information on its sole discretion (Villiers, 2006, pp. 13-14).

There is a broad variety of techniques and kinds of disclosing information, but there are two major and mandatory disclosures; financial information, and information regarding management's performance. These two categories are surrounded by a wide range of information. For instance detailed financial information covering current and historical information. Mostly financial information is categorised in hard and soft information. Hard information is verifiable facts in statement form, and soft information is surrounded by evaluation, analysis, opinions and predictions (Villiers, 2006, pp. 13-14).

The major points favouring disclosure of financial statements are; to prevent and identify frauds, safeguarding investors, internal control and liability of mangers to the stakeholders, to reduce cost of information searching efficiently, standardising information, ease of comparison, and other political and social benefits arising from disclosure. Further details for understanding the reason behind disclosure are ...