Introduction
The aim of this report is to highlight whether it is practicable to report prospective financial information in company financial statements and as well as to provide several recommendations. The sections of this report consist of six sections which are mainly why having financial reporting is not enough, going beyond historical financial reporting, qualitative characteristics of prospective financial information, uncertainties underpinning prospective financial information, other recommendation and conclusion.

Why financial reporting is not enough
The “Framework for the Preparation and Presentation of Financial Statements’ the International Accounting Standards Board (IASB) stated that the purpose of financial statements is to provide users information about the entity’s financial position, performance and changes to its financial position and financial statements show the financial effects of historical events and do not provide non-financial information. [5]
Hence, both internal and external users need both historical and forward-looking information in order to make better financial decisions. Internal users like the Management can use forward-looking information to analyse out an adequate valuation on whether to increase, hold or sell their investment. Likewise, external users like investors who want reasonable return on their investment can use forward-looking information to evaluate the sustainability of future entity performance and analysing the feasibility of investing in the company
Going beyond historical financial reporting
This forward-looking information is called prospective financial information. Prospective financial information relates to financial information which based on assumptions about events that may occur in the future and possible actions by an entity. Prospective financial information can be in form of a forecast or a projection, which often a one-year forecast is given together with a five year projection. A forecast is prospective financial information based on expectation from the management at the time of preparation of both future events and management actions. A projection is prospective financial information based on hypothetical assumptions about future events and management actions which may or not likely to occur, like a ‘what-if’ scenario. [1] Hence, prospective financial information will improve the usefulness of financial statements for both internal and external users.

Qualitative Characteristics of PFI
In the ‘Prospective financial information: Guidance for UK directors’, it mentioned that for PFI to be useful, PFI has to be understandable, relevant, reliable and comparable to users.

Understandable
Published prospective financial information should be followed with the related disclosure of assumption that takes into account risks, uncertainties and sensitivities. Hence, sufficient published prospective financial information is prepared clearly for both sophisticated users and unsophisticated users to be able to evaluate the assumption for decision-making purpose and able to justify the uncertainties attached with the assumption. [1] In order to have understandable prospective financial information for users, it should be disclosed in a rational and simple manner.

Relevant
Users are capable to use published prospective financial information to make economic decision by assisting them evaluate current or future events or correct their historical evaluations. Relevance PFI needs to have projecting value and to be able to confirm in the future. [1]

Reliable
Management is held accountable for both the preparation and presentation of prospective financial information and the derived assumptions that are being identified and disclosed in the prospective financial information. Prospective financial information should be supported by analysis of the business environment and be presented in a true and fair view and according to a rational basis. In order to enhance the credibility of the prospective financial information that is use for both external and internal users, the management may ask auditors to do an audit check and report on the PFI. A more credibility prospective financial information will increase potential investors’ confidence in the reliability and quality of published prospective financial information as a sound foundation for their investment decision. [3]
Comparable
The statements should reflect items, transactions and events in a manner of consistency. Prospective financial information should be presented in assessment with past financial information. Users can then make use of the prospective financial information to make comparison of the actual financial performance of the company based on the use of consistence accounting policies, reporting periods and presentation with current and subsequent information. [1]
Having a more understandable, relevant, reliable and comparable published prospective financial information, will result to potential investors and existing shareholders feeling safer when investing their money and be prepared with the future anticipations relating to the assumption and alternative outcome to their investment decision.
Uncertainties underpinning prospective financial information
Prospective financial information cannot, by its nature, be 100% supportable. The reason is because an assumption is an interpretation taken about the future for the purpose of preparing prospective financial information and where some information are not yet known and decide. In the preparation of prospective financial information, management needs to come out assumptions which relates to the economic and business conditions and proposed strategy. In assumption, the degree of certainty ranges from being rationally certain to very uncertain.

In the ‘Financial Reporting Standard no.42’, it stated that the degree of certainty involving to a specific assumption depends on are as followed: [6]
i. “The time period the assumption relates to” [6]
The increase in the length of the period covered, the more speculative the assumption which lead to the decrease in the ability of the management to make best‑estimate assumptions. The period will not lengthen further than the period for which management has a reasonable support for the assumptions. For example, in the case of a major construction project carry out by a construction company the time required to complete the project may be delayed. ii. “The stability of the entity and the ability of the entity to predict future events” [6]
An entity which has been functioning for several years in the same industry or environment is likely to be able to predict future events easily when compared with a new entity or an entity trying to attempt into a new direction will have more difficulty to predicting future events. iii. “The complexity of the entity and the degree to which it is affected by external conditions” [6]
The more significant the uncertainties, the greater the need to describe the adopted assumption, the determined factors that affect whether the assumption will be substantiate and the consequences of alternative assumption will not be substantiate. At the point where there are numerous significant uncertainties involving, such as labour, raw material and market demand may become too difficult for users to understand the prospective financial information. iv. “The degree of control the entity has over its future operating environment”[6]
v. “The nature and length of the entity’s operating cycle” [6] vi. “The number of variables associated with the assumption” [6]
Therefore, UK companies generally do not include PFI in their financial statements due to the uncertainties when comes to forecasting the future and when there are numerous significant uncertainties in an assumption, it may lead to may become too difficult for unsophisticated users to understand.

Other Recommendation
Quantification of Data
Having the analysis of current and future development, performance of the entity alone is not enough. When connecting the analysis with the relevant related information of trends and factors that may possible have an impact to the entity’s future prospects, this will improved the understanding of the investor about the environment that the entity operates in. An example of such quantified of data can be buying behaviours for a consumer products company or the cost of raw material for a manufacturing company.

Behavioural Finance
Conventional finance is based on the theories which define users to behave in the manner of logically and rationally. People begin to enquiry this because of anomalies present, which are events that conventional finance has a challenging time in explanation. An example of Behavioural finance is herd behaviour. In the paper of BHW (1992), it stated that herd behaviour has the tendency for individuals to imitator the rational or irrational actions of a larger group. Behavioural finance can aid investors train themselves to be more watchful of their behaviour and evade inaccuracies that will decline their own wealth. [7] An example of herdish incident was the price volatility that surrounded the 2007 Uranium bubble, which started with flooding of the Cigar Lake Mine in Saskatchewan, during the year 2006. [8]

Conclusion
In conclusion, the above outline both the numerous benefits and implication of prospective financial information. Advantage of prospective financial information can be summarised as being understandable, relevant, reliable and comparable and disadvantage would be the uncertainties underpinning prospective financial information. Though both the internal and external users need prospective financial information for correct and timely decision-making but the present of uncertainties in the assumption made in prospective financial information which are the time period which assumption relates to, the stability and ability of entity to predict future events, the complexity of the entity affected by external conditions and the present of behavioural finance where users behave illogically and irrationally when making decision. Hence, I believe it is not practicable to report prospective financial information in company financial statements.