Financial Reporting Is a Report Which Presented All of Company

Topics: Financial statements, International Financial Reporting Standards, Balance sheet Pages: 8 (2878 words) Published: April 4, 2013
In June 2010, the Commonwealth Government proved the Corporations Amendment (Corporate Reporting Reform) Act, Which effectively changes the Corporations Law to allow consolidated entities to prepare only consolidated financial statements. There is no requirement to prepare financial statements for the parent company, as was in the past. As a result of the reduced disclosure in financial statements an instantly recognizable trade-off has ultimately taken place. This is illustrated by Governments reaction to increase user friendly reports; however, this has reduced the accountability function through the exclusion of parent entity statements and the increase of the purported data in consolidated financials. The accountability function undoubtedly has been reduced and as Accountants we must strive to be accountable. This paper illustrates coherent logic based upon the principals of the doctrine of separate legal entity and statements made by Clarke, dean and Oliver; that relying on purported economic form rather than legal form is of nonsense. This paper also evaluates whether the accountability objective is difficult to maintain in the new legislation, though it would seem perhaps conclusive that reducing reliability (increasing relevance) ultimately makes difficulties in attaining accountability, further alternatives might need to be explored.

In June 2010, changes to the Australian Corporations Act 2001 (ACA -2001) were made. The changes made it possible for consolidated entities to prepare only consolidated financial statements; abolishing the requirement for a parent entity to prepare General Purpose Financial Statements (GPFS), as required in the past. The major changes are largely due to the over complexity that financial reporting has become; there was the demand to simplify company reporting, making corporate reports less complex and more relevant, “cutting clutter and reducing red tape” charteredaccountants (2010). A major driver for this act to de-clutter as Knight and Marshal point out in their discussion paper is the enormous costs and time associated with preparation and final disclosure of company reports Knight and Marshal (2009). Also a consideration is that the depth of information previously required “obscures relevant information and makes it harder for users to find the salient points about the performance of the business and its prospects for long-term success” charteredaccountants (2010). So has the reduction in financial reports reduced accountability? And should they remain as detailed, legitimate reports, demonstrating the underlying doings of a body corporate? The new Act that permits exclusion of parent reports has been welcomed by many but is critically analysed throughout academia as being misleading based that “no set of consolidated accounts can give a true and fair view of anything” Accounting Standards Review Committee (1978, p128-9). This essay will look at the nature of consolidations and introduce the importance of accountability within its context. By analysing the needs of the user and reflecting on the changes to legislation, this essay will comment on observations by Clarke, Dean and Oliver: “...relying on the purported economic form, rather than the legal form and its consequential financial substance” (Clarke, Dean and Oliver, 2003, p267).

The broader picture (or confusion) to consolidations
Consolidations procedures can be defined as an aggregation of line items. AASB 127 Consolidated and Separate Financial Statements notes that “an entity combines the Financial statements of the parent and its subsidiaries line by line by adding together like items of assets, liabilities, equity, income and expenses. In order that the consolidated financial statements present financial information about the group as that of a single economic entity” AASB 127, (2009). Prior to the mentioned amendments to Subsection 295(2) of the Corporations Act 2001 made in...

Bibliography: 2. Miriam, S. 2006 Groupthink, Vol: 44 Issue: s1 Page: 28 Accessed: 15/4/2011, ProQuest Central
4. Rosier, S. 2006, the probability of inconsistencies in complex collective decisions, Vol: 139 Issue: 8 Accessed: 15/4/2011, Academic One file.
6. Young, J. 2003, Accounting, Organizations and Society Vol: 28 Issue: 6 Accessed: 15/4/2011 Page: 1 Science directs freedom Collection.
1. Deegan, C. 2009, Financial Accounting Theory, McGaw- Hill, North Ryde Sydney.
2. Clarke, F., Dean, G, And Oli, K. 2003 Corporate Collapse: accounting, regulatory and ethical failure, Cambridge University Press, Cambridge ; Oakleigh, Victoria
2. Knight, B. and Marshall, R. 2009 Cutting Clutter. Combating Clutter in annual reports a financial reporting discussion paper. Accessed: 15/4/2011. URL:
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