Question

Question 2

There has been increased scrutiny and criticism over the reliability of financial statements over recent periods. This criticism has included items such as:

• High numbers of operating leases effectively representing off-balance sheet financing

• Increased usage of alternative performance measures

• Inadequate levels of goodwill impairment

• Insufficient scrutiny from auditors Requirement:

Explain the action that the International Accounting Standards Board (IASB) and the audit profession is taking in respect of these issues outlined above, and discuss how much of an impact this is likely to have on the perceived credibility of financial statements.

Answer 1

There has been mutltiple issues with recent developments with financial statements. As told management is using various way to show risky assets as off baance sheet through complex finacial instruments, bank gurnatees, operating leases etc. In past auditors have also not given adeuqate time to scruitnising these items as these all led multiple corpporate frauds and failurs worldwide. Of late there has been awarenes in various Accounting standard Boards , Market regulators and Auditor comminity of problems becuase of these. Investors are also taking Financial statment with a pinch of salt and readjusting financial statment to include/exclude various items so that proper comparison between comapnies can be made and informed investment decisions can be take. IASB has also came with various guidelines fortacking these issues and tightened audit SOPs so that these off balcnce sheet items donot impact true and fair view of the affairs of the firm, Auditors are asking for full disclosures of various off balance sheet items/ alternative investments . They are forcing management for greater details regading goodwill impairment testng, valaution of assets at regular interval so that any early sign of problem in going concern can be detected and same can be dislcosed in form of qualificaton in audit report.