Issues in Financial Reporting Essay Example | Topics and Well Written Essays - 2750 words

Issues in Financial Reporting - Essay Example According to the article, the off–balance sheet financing and pension fund accounting disclose only net liability and asset which lean to misrepresent the balance sheet and create confusion for the investor. Finally there is an issue of electronic accounting. The article states that traditional financial reporting system must move to electronic database format for making analysis easy and correct. Stage 2: Substantive Issues Credit Crisis In the year 2008, the International Accounting Standards Board (IASB) took a series of steps towards resolving the problem of credit crisis. IASB has identified the need to concentrate on new market development to simplify the International Financial Reporting Standards (IFRS). IASB mainly targeted the proposal of Financial Stability Forum (FSF). IASB directly observed the development of US accounting standards to avoid pointless contradiction in accounting in IFRS and GAAP (IASB, 2008). IASB has assigned the following steps: 1. Fair Value Me asurement: IASB has drafted guidelines on fair value measurement of financial instrument in market that are not active anymore. In the process of fair cost measurement IASB has formed a panel which includes expert advisors who will examine the fair cost measurement application. The expert advisors are selected according to practical experience of current market environment. The panel formed by IASB helps to review the valuation process. IASB requested the panel to judge the probable development to the regulation on ‘valuation and disclosure of financial instruments’ but in the mean time not to disclose the aptness of fair value as an approach to evaluate a particular type of financial instruments (IFRS Foundation, 2008). 2. Disclosure of Financial Instrument: IASB worked directly with FASB (Financial Accounting Standards Board) to formulate a common approach which was related to the issue of valuation of financial asset and liability. IAS 32 provides guidelines of the d isclosure about financial instrument, including information of fair cost are shown below: I. The financial asset should be disclosed at fair cost through profit or loss and must be shown separately (Ellis, 2007). II. The financial liability should be considered at amortized cost. In case of loan, the liability must disclose the maximum exposure to credit risk of any loan taken, or similar exposure to credit risk. Liability should disclose the amount of change in fair value of any associated credit or related instrument that has happened during the period when the loan was designated (Ellis, 2007). III. Financial instrument also disclose held–to–maturity investments, available– for – sale financial assets and receivables (Ellis, 2007). 3. Reclassify Financial Instrument: IASB has identified the need to scrutinise the accounting principles of IFRS for financial instruments. IASB has published a report which reflects on the possible alteration of IAS 39 stan dards (IASB, 2008). In the year 2008, IASB published a discussion paper which reflexes public statements about reducing complexity in