...NiCE Working Paper 09-108 April 2009 Quality of Financial Reporting: measuring qualitative characteristics Ferdy van Beest Geert Braam Suzanne Boelens Nijmegen Center for Economics (NiCE) Institute for Management Research Radboud University Nijmegen P.O. Box 9108, 6500 HK Nijmegen, The Netherlands http://www.ru.nl/nice/workingpapers 1 Abstract We construct a compound measurement tool to comprehensively assess the quality of financial reporting in terms of the underlying fundamental qualitative characteristics (i.e. relevance and faithful representation) and the enhancing qualitative characteristics (i.e. understandability, comparability, verifiability and timeliness) as defined in ‘An improved Conceptual Framework for Financial Reporting’ of the FASB and the IASB (2008). The operationalization of these qualitative characteristics results in a 21-item index. Using 231 annual reports from companies listed at US, UK, and Dutch stock markets in 2005 and 2007, we test our compound measurement tool on internal validity, inter-rater reliability (Krippendorff’s alpha) and internal consistency (Cronbach’s alpha). Our findings suggest that the measurement tool used in this study is a valid and reliable approach to assess the quality of financial reports. The measurement tool contributes to improving the quality assessment of financial reporting information, fulfilling a request from both the FASB and the IASB (2008) to make the qualitative characteristics operationally...
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...controls Taxation Documents on display Purchases of equity securities by the issuer and affiliated purchasers Fees and charges payable by a holder of ADSs Fees and payments made by the Depositary to the issuer Called-up share capital Administration Annual general meeting Exhibits BP Annual Report and Form 20-F 2010 83 Directors and senior management 84 87 Directors and senior management Directors’ interests 89 Corporate governance 90 105 106 106 107 108 Board performance report Corporate governance practices Code of ethics Controls and procedures Principal accountants’ fees and services Memorandum and Articles of Association 141 Financial statements 142 Consolidated financial statements of the BP group 150 Notes on financial statements 228 Supplementary information on oil and natural gas (unaudited) PC1 Parent company financial statements of BP p.l.c. 111 Directors’ remuneration report 112 Part 1 Summary 114 Part 2 Executive directors’ remuneration 120 Part 3 Non-executive directors’ remuneration UNITED...
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...Health Care Cost Study: Financial Statements The Patton-Fuller Community Hospital has been serving the community since 1975; so handling financial statements are familiar with them. The discussion in this paper will enlighten what is the difference of audited and unaudited statements, the relationship between revenue sources and expenses on performance, and the effect of revenue sources on financial reporting. It will also discuss is the hospital’s revenues and expenses grouped for planning and control. The audited and unaudited balance sheets from the Patton-Fuller statements differ by the net allowance of bad debts and retained earnings, or unrestricted fund balance. The audited version of the balance sheet states that 2009 has a net allowance of $11,757 for bad debts and a net allowance of $7,533 for bad debts in 2008. The unaudited version of the balance sheet states that 2009 has a net allowance of $10,757 and a net allowance of $6,777 for bad debts in 2008. The difference between the two allowances may be because audited numbers require accuracy. The unaudited numbers may be estimations; however, the audited statements require exact numbers. The audited and unaudited balance sheets from the statements also differ by retained earnings, total liabilities, and equity. The audited balance sheets show $125,564 in retained earnings for 2009 and the unaudited balance sheets show $126,564 in retained earnings for 2009. This results in a thousand dollar difference...
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...ACCOUNTING (STATEMENT ANALYSIS) 222/525 PRACTICE TEST SOLUTIONS SECTION A SECTION B Multi-Choice Questions True/False Questions | 1. |E | | |1. |T | | 2. |E | | |2. |F | | 3. |E | | |3. |T | | 4. |C | | |4. |T | | 5. |E | | |5. |T | | 6. |D | | |6. |F | | 7. |C | | |7. |F | | 8. |D | | |8. |T | | 9. |B | | |9. |T | | 10. |C | | |10. |T | | 11. |E | | |11...
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...of “enhanced” standards on publicly traded companies intended to ensure financial reports were being reported accurately to the public. Among others, these enhanced standards include: • Companies must maintain adequate controls over financial reporting. • Companies must provide a statement regarding the method the company uses for evaluating their control over financial reporting controls. • Companies must disclose any material weaknesses in their accounting controls. • Auditors must issue an attestation regarding the managements own assessment of its financial reporting capabilities. Why the new enhanced standards are necessary Congress passed the Sarbanes-Oxley Act of 2002 in reaction to accounting scandals involving well-known companies like Enron, WorldCom, and Tyco that were inaccurately reporting financial information over a period of years. Through close relationships with accounting firms that amounted to conflicts of interest, these companies were able to perpetuate their fraudulent financial reporting. One noted accounting firm – Arthur Anderson – was forced to shut down because of the scandal, though several other accounting firms were also implicated. The story of Enron’s demise and the financial fraud that lead to it is perhaps the most well-known of the group, illustrates the real reason behind the Sarbanes-Oxley Act. “Enron's nontransparent financial statements did not clearly depict its operations and finances with shareholders and...
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...TO: TO WHOM IT MAY CONCERN FROM: SUBJECT: CITY OF DENVER CO, CAFR, ANALYSIS OF MD&A DATE: The following memo highlights 4 interesting aspects of the Comprehensive Annual Financial Report of the City of Seattle Washington for Calendar Year January 1st – December 31st 2009. The complete report can be found following this link: http://www.seattle.gov/cafrs/2009/default.htm 1. On page #2 (and on the relevant statements on pages 10 and 11) of the Management’s Discussion and Analysis, it is noted that the fund financial statements are broken down by governmental funds, proprietary funds, and fiduciary funds. The governmental funds are broken down into general, special revenue, debt service, capital projects and permanent funds. It is interesting to note that the city of Seattle has identified 3 major governmental funds that are presented separately in the governmental funds balance sheet and statement of revenues, expenditures, and other changes in fund balances. The major funds are the General Fund, Transportation Fund, and Low-Income Housing Fund. The general fund should always be reported as a major fund. Other individual funds should be reported as major funds if, 1) total assets, liabilities, revenues, expenditures of that fund are at least 10% of the corresponding total for all funds of that category and 2) total assets, liabilities, revenues, expenditures of that fund are at least 5% of the corresponding total for all governmental and enterprise funds combined. For...
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...potential investment. The documents that need examining are the income statement, balance sheet, and cash flow sheets. This analysis will aid in the determination of the financial health of Whole Foods Market. A comparison of Whole Foods Market with two competitors—United Natural Foods and Hain Celestial Group—will be completed. Technology is important within a business environment; therefore, the strength or weakness that Whole Foods Market has will also be discussed along with globalization. The paper will conclude with a benchmarking analysis of Whole Foods Market against United Natural Foods and Hain Celestial Group. Financial Health Every public company trading on the New York Stock Exchange is required to file quarterly and annual statements regarding financial records. To analyze the financial health of Whole Foods Market as a potential investor, I could access the United States Security and Exchange Commission (SEC) filing dated January 15, 2012. The key factors of a financial statement according to William Nickels, James McHugh, and Susan McHugh, (2010), are 1. The balance sheet that reflects the financial strength and health of the company on a specific date 2. The income statement, which summarizes revenues, cost of goods, and expenses (including taxes), for a specific period and highlights the total profit or loss the firm experienced during that period. 3. The statement of...
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... Reporting Practices & Ethics Paper In the health care environment financial practices and ethical care finance is very important to produce successfully organizations. In the health care industry and in any business, ethical and financial practices are adopted to increase the organization value and consumer confident as well as protected the services or products provide by the organization and maintain the organizations brand name. With the cost of providing health care services, patient’s way of payment for these services and the environment in which those patients reside and receive those services are important elements that affects care. This is why financial management and financial reporting is also essential factors for any organization. Most organizations have mission statements, values and visions created to uphold the utmost integrity, honesty and respect for not only the community it serves but also the employees. Financial management can create a positive atmosphere of teamwork or a negative one of turmoil and failure. That is why it is very important for health care organizations to abide by the four elements of financial management. Four Elements of Financial Management The four elements of financial management are planning, controlling, organizing and directing, and decision making. Planning is when the financial manager identifies the steps that must be taken to accomplish the organization’s objectives. The purpose...
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...ordinary audit of financial statements is the expression of an opinion on: | | the fairness of the financial statements | | CORRECT | | | the accuracy of the financial statements | | | | | the accuracy of the annual report | | | | | the balance sheet and income statement | | | 2. The auditor's best defense when material misstatements are not uncovered is to have conducted the audit: | | in accordance with auditing standards | | CORRECT | | | as effectively and as reasonably possible | | | | | in a timely manner | | | | | only after an adequate investigation of the management team | | | | | | | | | | | | | 3. Which of the following statements is most correct regarding errors and fraud? | | An error is unintentional, whereas fraud is intentional. | | CORRECT | | | Fraud occurs more often than errors in financial statements. | | | | | Errors are always fraud and fraud is always errors. | | | | | Auditors have more responsibility for finding fraud than errors. | | | 4. Which of the following statements is true of a public company's financial statements? | | Sarbanes-Oxley requires only the CEO to certify the financial statements. | | | | | Sarbanes-Oxley requires only the CFO to certify the financial statements. | | | ...
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...10th Aug 2012. However she only received the money on the 19th Aug 2012. Hence she recorded the sale on 19th Aug 2012 | Objectivity | Adhered | 4. A receipt was issued by the business after receiving the money for goods sold. | Objectivity | Adhered | 5. Helena has been the proprietor of Home’s Laundry Services for a number of years. Recently, the business has been struggling and she is uncertain as to whether she will continue her business next years. She has decided to base on what she expects to receive if she decides to sell the firm’s assets | Going Concern | Violated | 6. Raja Vatsan does not think it is necessary to prepare a profit and loss statement and balance sheet every year. He has been in business operating under the same name Raj Vat Shop for five years now and has just completed the financial reports for the three year period to show a profit of $70,000 | | | 7. The purchase of some hole punchers and staplers was recorded as fixed assets | Materiality | Violated | 8. Mr Maxwell who ran an IT company decided to charge the entire cost of an advertising campaign, which was expected to last over three years as the current year’s expenses | Matching | Violated | 9. Patrick, the owner of Pat’s Pets calculated the profit of his business in the first year using the cash method of accounting. On the advice of a friend who was studying accounting at the...
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...effectiveness of internal control over financial reporting.) Independent Auditor's ReportTo the shareholders of Fast Times Corporation,We have audited the accompanying balance sheet of Fast Times Corporation as of September 30, 2009, and the related statements of income, retained earnings, and cash flows for the past year. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit.Except as discussed in the following paragraph, we conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.We were unable to obtain audited financial statements supporting the company's investment in a foreign affiliate stated at $1,040,000, or its equity in earnings of that affiliate of $501,000, which is included in net income, as described in Note 14 to the financial statements. Because of the nature of the company's...
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...Financial Statements Patty Reagan ACC/561 September 24, 2012 Bethany Kessel Financial Statements The financial statements of a company give the reader a view of the financial health of the company. The four major reports are the income statement, balance sheet, cash flow statement, and the statement of shareholders’ equity. By understanding the statements and how they relate to one another can help any individual to understand the financial position of the company and will aid in making good decisions when relating to the company. Each report is of importance to the management, creditors, and the investors. Income Statement The gains, revenues, losses, and expenses of a company are listed on the income statement (Johnson, 2012). The money that a company earned from the usual business operations is the revenue. The costs that are associated with earning revenue are expenses. If a company were to sell an asset, it will be considered to be either a capital gain or loss. The amount of net income is found on the cash flow statement as well. This report will be important to investors, creditors, and management. All involved parties want to see if the company is making money or if it is losing money. Balance Statement The balance sheet is a summary of a company’s assets, liabilities, and shareholders’ equity for a particular period (Balance Sheet, 2012). The three segments will give an investor a view of what a company owns and owes and the amount that shareholders...
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...of this essay is to discuss financial reporting is both a reflection and creator of our perception of social reality and is consistently evolving. By means of research of these source collections, relevant evidence is selected, evaluated and organized into three key areas: the Carbon tax legislation represents a creation of a new social reality and the impact on sustainability in business. The carbon tax would be represented in the financial reports. To introduce the particular company and legislation impacts on that company. The Framework shows that the financial reporting is present relevant and reliable information. Some experts considered that the insufficient information on financial reporting impact on social reality. Thus, the Sustainability reporting occurs to fix up the fanatical reporting gaps. Introduction Financial reporting is both a reflection and creator of our perception of social reality and consistently evolving. Currently, accounting system is not only focus on the data of how much company earns, it also shift towards to social responsibility. As the dramatic of pollutions, especially that of the developing nations is extremely harmful not only to the surrounding environment, but also to the inhabitants of that country as well. Thus, financial reporting take concern on such problems and create out Sustainability reporting which help to reduce the pollutions. This essay is to discuss the both reflection and creator of financial reporting in reality social...
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...practice, revenues are recorded into the financial records as soon as the services are performed or goods are delivered, no matter whether the payment is received from the clients or not. If you have “earned” it, you better record it. On the other hand, based on the matching principle, expenses are entered into the financial system to the extent; they are utilised in order to generate the recognised revenue as above. No matter whether the payment has been made or not, if you have “incurred” it, you need to book it. It is slightly complicated and requires time and money to implement it. However, it tells the real financial situation of the company and shows to the owners the overall profitability of its operation. Cash accounting method has a completely different viewpoint. It states that revenues to be recorded when cash is “received” from customers, no matter when the service is performed or goods delivered. On the other hand, expenses need to be booked when cash is actually “paid," no matter when it is incurred. This method is easy to understand and consumes fewer resources. It paints an accurate picture of the cash appetite of the company as it shows how much cash is left over after paying all the expenses. Do companies have a choice? Well, accrual accounting is considered a common accounting method employed by a majority of the companies. GAAP approves accrual accounting over cash accounting and requires financial statements to be prepared based on accrual principles...
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...Chapter 2 Worldwide accounting diversity Chapter Outline I. Considerable differences exist across countries in the accounting treatment of many items. These differences can result in significantly different amounts being reported in the financial statements prepared by companies using different GAAP. II. A variety of factors influence a country’s accounting system. A. Legal system – in code law countries, accounting rules tend to be legislated; common law countries tend to have a non-legislative organization that develops accounting standards. B. Taxation – financial statements serve as the basis for taxation in many countries. In those countries with a close linkage between accounting and taxation, accounting practice tends to be more conservative so as to reduce the amount of income subject to taxation. C. Providers of financing – in those countries in which family members, banks, and the government are the major providers of business finance, there tends to be less demand for public accountability and information disclosure. In countries where shareholders are a major provider of financing, the demand for information made available outside the company becomes greater. D. Inflation – countries with chronic high inflation adopt accounting principles in which traditional historical cost accounting is abandoned in favor of inflation adjusted figures. E. Political and economic ties – through previous colonization, a British style of accounting...
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