Comprehensive Income Statement Essay: Importance And Disclosures.

consider the important recognition and measurement decisions on the nature of the resulting information from both financial performance and financial position perspectives

Revenue and Expenditure Reporting by Companies

The comprehensive income statement of the company includes revenue from continuing operations, i.e. $359,645,000 for the year 2017, with corresponding amount for the previous year. All expenses incurred in earning the revenue have also been provided in the statement. Profit from continuing operations has been shown in the comprehensive income statement. All the relevant details in relation to foreign currency translation has been provided in the statement. Apart from profit / loss from continuing operations the company has also provided financial information as to the profit or loss from discontinuing operations (Du, Stevens and McEnroe, 2015).

Comprehensive Income statement of the company has provided all detailed information about its revenue and expenditures for the current financial year along with corresponding figures for previous financial year. The amount of profit earned from both continuing and discontinuing operations have been reported in the statement. Earnings per share, both basic and diluted, have been reported in the statement (De Simone, 2016).

The Comprehensive income statement of Maca contains revenue from core business operations and other income along with direct and finance costs of the company. Profit attributable to controlling and non-controlling interests have been provided in the statement to help the users of the financial statements.

All the three companies have reported all necessary details about the amount of revenue earned and expenditures incurred in business. This is the most significant similarity between the comprehensive income statements of all the three companies. The companies reported revenue from business along with other income and all expenditures incurred to earn revenue from business. All the three companies have also reported the amount of profit before and after taxation. Apart from that another major similarity is that each of the three companies have reported EPS, basic and diluted (Barth, Landsman and Lang, 2008).

The differences are not much but one contrast difference is the fact that Maca has reported income from controlling and non-controlling interests whereas other two companies have reported income from continuing and discontinuing operations.    

Honestly, the clarity of financial information does come from comprehensive income statement as reported by these entities since the disclosure regarding items of revenue and expenditures have been provided in significant detail. However, for an ordinary person it would be quite difficult to assess the impact of different items on the performance of these entities (Skeldon, 2014). Thus, it is important to bring necessary changes to the existing structure of comprehensive income statement to make it more understandable for the users of financial information. Important thing to note is that the users of financial information are not expected to have significant knowledge in accounting thus, the financial statements must be easy to read and understand.     

IASB Guidelines for Financial Reporting

The conceptual Framework issued by the International Accounting Standards Board, referred to as IASB here in after in this document, guides the accountants in preparation and presentation of financial statements in accordance with in the International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS). Detailed discussion on the financial reporting of Macmohon Holdings Limited, Marcantile Investments Company Limited and Maca Limited is made in this document. 

IASB has issued IASs and IFRSs which are to be followed by the accountants strictly while preparing financial reports. Evaluation of financial statements of few companies listed in ASX has been made here. Along with that the news articles, documents and other research papers shall be evaluated with the objective of understanding nuances of IASs and IFRSs. 

Companies are required to comply with appropriate accounting standards to report financial information in a suitable format. IASB has issued number of accounting standards that countries have more or less followed to develop their own sets of accounting standards applicable for financial reporting. Australian Accounting Standards Board (AASB) has issued standards for accounting which Australian companies must follow (Schaltegger and Burritt, 2017).

Disclosure requirements: 

Number of articles have been written on the importance of increasing the disclosure requirements in financial reports. It is specifically considering the fact that the size and operations of entities over the years have increased multiple times with ever increasing impact of globalization. However, the entities despite becoming so large have not really changed the financial information reported by them. As a result the financial reports prepared under the existing standards applicable are not really capable in properly disclosing the financial position and performance of these large multi-national entities (Christensen et. al. 2015).

Hans Hoogervorst, Chairman of IASB, in his 10 point agenda speech in IFRS Conference in Amsterdam, Netherlands mentioned the importance of breaking the boilerplate in financial reporting. It is essential to improve the disclosure requirements and thus, necessary to make behavioural changes in financial reporting disclosure. Since there has been no change in the conceptual framework for number of years now the disclosure requirements for large and small entities have remained more or less similar (Nobes, 2014). Thus, for large entities with significant business operations in different parts of the world the current financial reporting requirements are not appropriate to disclose all necessary information required by the users.

Thus, the existing financial reporting requirements is not commensurate for large entities with huge amount of operations spreading in different parts of the world. The financial reporting requirements though appropriate for normal entities with significant operations but often not commensurate with the size and business operations of multi-national large entities. Hence, valuable information is often hidden by the boilerplate disclosures (Cascino and Gassen, 2015).          

Need for Improving Disclosure Requirements

 IAS 1, Presentation of financial statements, issued by the IASB provides all relevant guidelines and provisions to be followed for presentation of different items and the structure in financial statements. As per IAS 1 an entity must disclose the amount of profit earned or loss incurred from business operations by preparing the books of accounts in accordance with the fundamental principles of accounting. The IASB has stated that an entity must disclose financial information by following the three fundamental accounting concepts; these are Accrual basis of accounting, Going concern assumption and consistency (Abata, 2015.). In case an entity has not followed any particular fundamental accounting principles then necessary disclosure shall be made in the notes to accounts.

The operating profit before interest and tax in case of an entity must be reported in accordance with the accounting principles and policies. Operating profit before interest and tax is the amount of profit earned by an entity after deducting all expenditures except interest and tax. Operating profit before and interest and tax is calculated by taking into consideration the amount of revenue from continuing operations. The current IFRS framework definitely provides significant details about the various expenditures that have to be deducted in order to calculate the operating profit before interest and tax. However, with ever changing dynamics of business and expansion of business to different corners of the world it is important to keep on modifying the existing framework of IFRS for better clarity in financial reporting (Schaltegger, Burritt and Petersen, 2017). This includes clarity to the definition provided in the existing framework for operating profit before interest and tax.

EBIT as defined in the existing framework is the earnings before interest and taxes is the amount of revenue earned from continuing business operations reduced by the amount of expenditures incurred to earn such revenue except the amount of interest and tax. The EBIT is to be calculated under accrual basis of accounting as per IFRS standard (Barth et. al. 2014).

As per the guidelines provided by the IASB the profit and loss is the resultant amount of revenue after deducting all necessary expenditures incurred and taxes paid by a business. It is different from operating profit before interest and tax (EBIT) as it includes the amount of revenue and expenditures from non-continuing business operations. The IASB and International Financial Reporting Standards Board, IFRSB here in after, have clearly mentioned in the permeable to the financial reporting and accounting standards that the organizations must follow the accounting principles and policies along with applicable accounting standards to disclose the amount of profit and loss of a business. The books of accounts must be prepared in accordance with the double entry system of accounting and as per accrual basis to correctly report the amount of profit earned or loss incurred from business operation for a particular period (Müller, Riedl and Sellhorn, 2015).           

Definition of Profit and Loss

The stakeholders of an organization uses the financial information provided in the financial reports of the organization to assess the financial performance and position of the organization as on a particular period. The current definition provided of profit and loss certainly meets the requirements of the users of financial statements. But it is equally true that the complexity of business is increasing significantly and the IFRSs must be modified accordingly, to provide the stakeholders of an organization with all necessary information required by them for assessment of financial performance and position of the organization as on a particular date (Black, 2016).

Other comprehensive income as defined by the Generally Accepted Accounting Principles, here in after to be referred to as GAAP, and International Financial Reporting Standards is those amount of revenues, expenses, gains and losses that have not been included in computation of net income in the income statement of an organization. Thus, in effective terms these are the amount of revenues, expenses, losses and gains that are reported after reporting net income in the income statement (Daske et. al. 2013).

The current definition provided on other comprehensive income in the existing conceptual framework of IASB certainly meets the financial information requirements of users of financial statements and stakeholders of business. But the ever complexity of business operations and expansion of business must be considered to make necessary changes in the existing framework to include important elements for appropriate disclosure of other comprehensive income as per the requirements of the stakeholders of an organization (Barth et. al. 2014).             

Conclusion: 

Taking into consideration the discussion it would be not incorrect to state that the existing framework though not insufficient for disclosing the financial performance and position of an entity but there is certainly huge room for improvement. The quality of disclosure required in the existing framework has to be updated keeping in mind the expansion of business due to the ever increasing effects of globalization. IASB and IFRSB are also continuously looking to improve the quality of financial reporting by developing and issuing new financial reporting standards.

In order to ensure that the quality of financial information provided in the financial statements is as per the requirements of users of financial reports it is important to keep on looking for new and better ways to prepare and present financial reports. Development and issue of IFRSs and IASs is the most effective method to improve the quality of financial reporting (Pilcher and Gilchrist, 2018)

The IASB and IFRSB must continuously look to make necessary changes in the existing conceptual framework by issuing new and improved standards to ensure that the users of financial information are able to currently evaluate the financial state of an entity and its position as on a particular date. The IASB and IFRSB should also consider different sets of accounting standards for small and medium and large enterprises. The objective of improving the quality of financial reporting must be achieved and in order to do that all necessary efforts have to be made by the Global Governing Body of accounting and financial reporting standards, IFRB and IASB (Du, McEnroe and Stevens, 2016).

References:

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Barth, M.E., Landsman, W.R., Young, D. and Zhuang, Z., 2014. Relevance of differences between net income based on IFRS and domestic standards for European firms. Journal of Business Finance & Accounting, 41(3-4), pp.297-327.

https://onlinelibrary.wiley.com/doi/abs/10.1111/jbfa.12067

Black, D.E., 2016. Other comprehensive income: a review and directions for future research. Accounting & Finance, 56(1), pp.9-45.

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Cascino, S. and Gassen, J., 2015. What drives the comparability effect of mandatory IFRS adoption?. Review of Accounting Studies, 20(1), pp.242-282.

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Christensen, H.B., Lee, E., Walker, M. and Zeng, C., 2015. Incentives or standards: What determines accounting quality changes around IFRS adoption?. European Accounting Review, 24(1), pp.31-61.

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De Simone, L., 2016. Does a common set of accounting standards affect tax-motivated income shifting for multinational firms?. Journal of Accounting and Economics, 61(1), pp.145-165.

https://www.sciencedirect.com/science/article/pii/S0165410115000464

Du, N., McEnroe, J.E. and Stevens, K., 2016. Why isn't comprehensive income comprehensible? The FASB and the IASB have made headway in dealing with OCI issues, but it's time to establish conceptual definitions. Strategic Finance, 98(5), pp.46-54.

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