Question

Discuss the Codification of “financial reporting policies”?

Answer 1

Financial Reporting provides information that is important for company’s shareholder and other stakeholders to verify company’s activities. Financial reporting is therefore conducive to the sustainment and enhancement of society’s confidence in the Company. Conversely, incorrect financial reporting may cause not only unexpected loss to a number of stakeholders, but also significant damage to confidence in the Company.

Different policies of Financial Reporting are as follows:-

· Confirmation of responsibility by the management

· Purpose of financial reporting for which it is being prepared. A financial report refers to consolidated financial statements in principle, and these Basic Policies must be followed by both the company primarily responsible for the preparation and submission of consolidated financial statements and its consolidated subsidiaries and affiliates.

· Financial reporting should the prepared as per accounting principles i.e., GAAP, (Accrual principle, conservatism, consistency, etc.).

· Establishment and assessment of internal control system. It must be ensured that that all the reports are properly recorded and retained.

· Disclosure of information to the investors, creditors, government and other users.

· Staffing of financial reporting, so as to foster and train personnel to give them professional expertise and a sense of ethics required for the preparation of reliable reports.

The codification financial reporting includes financial accounting and reporting guidance which has been issued by the ‘FASB’ (Financial Accounting Standard Board) and also some of relevant portions of financial accounting and reporting guidance that has been issued by the ‘SEC’ (Securities and Exchange Commission). FASB improves the comparability of disclosures by providing guidance on when there is substantial doubt and how the underlying conditions and events should be disclosed in the footnotes. The standards which govern the preparation of financial reports and are officially recognized as authoritative by the Securities and Exchange Commission (SEC) are essential to the efficient functioning of the economy because investors, creditors, auditors, and others rely on credible, transparent, and comparable financial information.