Introduction of Financial Reporting in the car industry, medical industry, oil and fuel industry, fabric industry and food industry

            In the present age, competition in the market is increasing for some industries. For instance, in the car industry, medical industry, oil and fuel industry, fabric industry and food industry. Companies working in the highly competitive market trying to build a strong positive image in the market. Big companies working as joint stock companies sell out their stock in the open market to get investment from the investors to run the operations of the company inappropriate manner and to expand their business (Renkas, et al., 2016). For this purpose, they share their financial reports with the stakeholders of the company. Financial reports present the situation of a company on a specific date that helps out the investors and management also to make strategic decisions.

           Accuracy and understandability of the information provided in the report are essential. Financial reports representing the financial information incorrect can cause to destroy the image of the company in the market (Leung, et al., 2012). Therefore, considering these factor organizations are required to ensure the quality of the financial information presented in the reports. In this paper, several terms as IFRS, Quality, Financial Statement, and Accounting standards are used that are elaborated in advance in the definition section of the paper. However, the paper also emphasis on the importance of quality, and several approaches to be used in companies to ensure the quality of financial reporting.            

Background of study of Financial Reporting in the car industry, medical industry, oil and fuel industry, fabric industry and food industry

            The current topic to be studied is the quality of financial reporting. Companies develop the financial report to represent the income and business of the company. In the past, the financial reporting system was not really strong. There were no standards and principles. Therefore, companies were not concerned with the quality of their reporting. Manipulation and errors in reports were common, that affected the image and business of several companies in past. Even information presentation methods in reports were different in various areas of the world as a result of this it was difficult for companies to expand their business in different countries. Accounting boards introduced new standards and guidelines for the information presentation method. The main purpose behind introducing the quality standards was to bring improvement in the business operations, examine resources usages, clearly projecting cash flows, and introducing business financial health without errors and manipulations (LI, et al., 2007). In the past scientists and philosophers like R. Boyle, Thomas Hobbes, Aristotle, John Locke, and Karl Marx investigated the quality of financial reporting. M.  S. Pushkar, E.S Sokolova, and E.P. Reichman played an active role in investigating the issue of Quality of Financial reporting. Efforts of these researchers and scientists resulted in the introduction of IAS and IFRS. Quality of financial reporting is a very important topic in accounting and finance. Considering the importance of the topic the whole study is conducted on this topic (Renkas, et al., 2016). However, other than the importance of the topic I was also interested to research this topic because it relates to my interest. I also want to start my own business in the future, therefore, I was interested to select the topic that benefits me most in future to run my business appropriately and in a successful manner. Studying this topic and reviewing the literature regarding this will help out me by increasing my knowledge about the quality of the financial reporting.         

Definitions of Financial Reporting in the car industry, medical industry, oil and fuel industry, fabric industry and food industry

           The following terms are related to the topic. Below definition of these terms presents the overview of the key concepts of the study.  

Financial Reports:

        Formal records of the financial position and financial activities are known as financial reports.  In order words, financial reports are statements presenting the situation of a company, and previous cash flows of the company in a fiscal year (Renkas, et al., 2016). Major examples of the financial reports are the statement of cash flow, balance sheet, statement of retained earnings, and income statement. 

Quality:

Quality represents the standard and excellence of something.

Accounting Standards:

The authoritative standards for financial statements of the companies are known as Accounting Standards. IAS and IFRS are examples of accounting standards.  

IFRS:

The new common set of standards and principles implemented in the organizations to provide information regarding practices and policies of the financial accounting are known as IFRS Accounting Standards (Leung, et al., 2012). IFRS is the new accounting standards by GAAP. IFRS is an abbreviated form of International Financial Reporting Standards.

Manipulation:

Accounting data manipulation refers to the changes intentionally made by the managers in the financial statements to favor the business.

Findings of Financial Reporting in the car industry, medical industry, oil and fuel industry, fabric industry and food industry

             Findings section in this paper is also based on the important features and observations of the topic. To research the topic several research articles, website articles and other academic resources such as books are reviewed. Finding section is based on the information collected from all these resources. Companies are required to maintain and ensure the high quality of their financial reporting statements (Leung, et al., 2012). Inappropriate data, the presentation can raise issues related to validity and reliability of the data that are not desired in the business world even competition between companies is really high and a little mistake can change the fortune of the company. Investors invest in the companies that present the accurate information free from ambiguity and accounting data manipulation. According to the business, Law companies are obliged to present clear and fair information about their assets, liabilities, and expenses in the financial reports to ensure fair trading of shares. Other than attracting new shareholders, quality of financial reporting statement is also important for current shareholders of the company (Leung, et al., 2012). Shareholders invest their capital resources in the business; therefore, companies are obliged to provide the right information about the cash inflows and outflows in the statements without any kind of reporting the error and intentional mistake. 

            Basically, financial statements are must require to follow some criteria to achieve the target of High quality in the reporting system. Financial reports can affect the abilities regarding future strategic decision-making process (Renkas, et al., 2016). In the financial reporting there can be two types of errors 1) system error and 2) professional error. The processional error refers to managerial error or accounting manipulation. Managers sometimes change the information for the benefits of a company or to hide frauds. The professional error is common in the recording of economic transactions. The second kind of error “system error” relates to the operations of the same type (LI, et al., 2007). Typing error and problem in the recording system of transactions are common system errors that can be controlled after identification. There are different ways through which companies can evaluate the quality of the financial reporting as through checking completeness, information quality, comparability, validity, and reliability. In the comparability managers or auditors (also the investors while making the decision regarding investment or share purchases) can compare the financial performance of the most recent year with the previous fiscal years or accounting periods (Leung, et al., 2012).

               Most of the time sudden huge changes indicate the error of data presentation. Structure of the reports also includes in the quality of financial reporting. Quality of reports improves when financial managers present the most relevant information only in the report. In the Balance Sheet and Income statement comprehensiveness and clarity is really important to ensure High quality. However, details related to the accounts should be presented in the notes (usually presented at the end of the financial reports) that can support the new investors and other shareholders to understand the presented account information completely. The consistent and logical structure of financial statement improves the quality of reports.

            According to the International Accounting Standard board quality of reporting system can be ensured by rechecking the specific values used in the reports and following the principles of IFRS (Psaila, 2018). To improve quality of the financial reporting companies are required to present the timelines and deadlines that will represent that before which date the information presented in the report is useful and valuable for the investor to make decisions. Internal Auditors and External auditors also work to ensure the quality of the financial reporting (Renkas, et al., 2016).                             

Summary and Recommendation of Financial Reporting in the car industry, medical industry, oil and fuel industry, fabric industry and food industry

              Quality of Financial reports and statements is really important for companies to get a better image in society. Investors invest in the companies that provide accurate and clear information about their financial operations and statements. A financial statement including balance sheet, income Statement, and Cash Flow provide information about activities and financial position of the company (as profit, loss, expense, and assets of the company). IFRS and auditing system ensure the quality of financial reports in the companies. Validity, completeness, comparability, and reliability of the reports provide information regarding the quality of the information and reports. There are some recommendations that can help out the companies to make the quality of their financial reports high. At the first, companies should follow the accounting standards as IFRS to make the reports accurate. Companies should also ensure auditing system for rechecking the information presented in the reports.