Contemporary Issue in Financial Reporting


According to Rankin et al. (2012), financial reporting plays a key part in the provision of high-quality financial reporting information concerning fundamental economic decision making, economic entities along with those that are completely financial in nature. Presenting appropriate financial reporting information of superior quality is valuable as it provides a clear impression on the performance of the business, which in turn influences investors and enhancing efficiency in the market. This would present an opportunity of making prudent choices on either investing or acquiring a firm, therefore encouraging the resourceful distribution of assets.  However, regardless of the indicated merging revolution twenty years ago, a comparison of financial statements across nations is still a challenge.

Report Findings

There are more sinister and possibly further destructive practices of swaying, not just the figures in fiscal reports, but the operational choices that have an impact on statistics in an attempt to accomplish temporary outcomes. According to Sherman & Young (2016), one of the main issues revolves around the recognition of revenue. Under the existing GAAP guidelines, an enterprise is not permitted to record any proceeds from sales until all upgrading standards are met, and the budgets acknowledged (Demerjian, 2011). For instance, this directive has impelled several software firms to inscribe pacts that carve out and distinctly charge modernizations and other services that are hard to estimate. In doing so, corporations resolve a bookkeeping challenge but concede their capability to implement a credibly, further appealing approach. The outcome is a wicked classification in which book-keeping guidelines affect the modes of conducting business, instead of reporting a firms’ outcome. An alteration in the guidelines under both IFRS and GAAP are aimed at alleviating the perversities of existing revenue recognition practices (Landsman Maydew & Thornock, 2012). The fresh regulations may assist companies that package prospective goods and services into deals to identify income by utilizing approximations of forthcoming expenditures and incomes. Consequently, the adoption and implementation of the new principles under GAAP and IFRS will necessitate investors to diligently assess the needed techniques used to estimate expenses and account incomes.

When bookkeepers and stakeholders, converse about book-keeping games, they frequently emphasis on what way expenses are accumulated in a firm’s statements. For instance, managers may decide on to purposely overstating expenditures or deficits, which include bad debts or reorganization of expenditure. This is to create a concealed backup that may be used in the future to insincerely overstate the profit margin. Also, a corporation might be under-provision, intentionally deferring the acknowledgment of an outlay or a loss in the present year. Therefore, revenue is used from imminent phases to increase income in the existing period. Contemporary alterations in GAAP and IFRS guidelines have resulted in most undertakings being less egregious as compared to how they were, despite the increased cases of overprovision (Ibarra & Suez-Sales, 2011). Administrators want the book-keeping freedom that derives from partaking concealed stocks since firms are doubtful to be indicted for not correctly stating the revenue projections.

According to Sherman and Young (2016), unsanctioned revenue measures are comparatively novel for numerous corporations; all business entities are known to be utilizing non-GAAP and non-IFRS standard for an extended period. However, Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) is mainly prevalent as it is a precise choice amongst privatized entities as it’s it is perceived to offer a fast alternative for the sum of cash flows accessible to settle debts.  For instance, within the technology industry, non-GAAP procedures are extensive; throughout the initial phase, firms used page views and other features to persuade experts and stakeholders that the business entities were worthy, notwithstanding the profit non-existence. Currently, Sarbanes-Oxley necessitates that every company listed in the stock exchange to merge the GAAP measure of incomes to non-GAAP processes, with IFRS stating a comparable prerequisite (Bargeron Lehn, and Zutter, 2010). Furthermore, the SEC necessitates that every administration should support the thought behind embracing alternative measures in its monetary revelations (Kedia and Rajgopal 2011).  For instance, a firm may substantiate the utilization of non-GAAP measures by stating that it is mandatory some of the pact agreements.


Outcomes under both the recognized accounting standards and the global financial reporting principles may be varied enough to alter to a purchase pronouncement (Barth et al., 2012).  Even though these alterations are geared in the right path, they still fail to solve the issue, and massive inconsistencies remain in financial accounting. Stakeholders and experts ought to continue exercising extreme cautiousness in the interpretation of unsanctioned income processes and have to keenly observe business clarifications that may vary on the usage of administrative decisions.




Sherman, H.D., and Young, S.D., 2016. Where financial reporting still falls short. Harvard business review94(7), p.17.

Ibarra, V. and Suez-Sales, M.G., 2011. A comparison of the International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) for small and medium-sized entities (SMEs) and compliances of some Asian countries to IFRS. Journal of International Business Research10(3), p.35.

Barth, M.E., Landsman, W.R., Lang, M. and Williams, C., 2012. Are IFRS-based and US GAAP-based accounting amounts comparable?. Journal of Accounting and Economics54(1), pp.68-93.

Bargeron, L.L., Lehn, K.M. and Zutter, C.J., 2010. Sarbanes-Oxley and corporate risk-taking. Journal of Accounting and Economics49(1-2), pp.34-52.

Demerjian, P.R., 2011. Accounting standards and debt covenants: Has the “balance sheet approach” led to a decline in the use of balance sheet covenants?. Journal of Accounting and Economics52(2-3), pp.178-202.

Landsman, W.R., Maydew, E.L. and Thornock, J.R., 2012. The information content of annual earnings announcements and mandatory adoption of IFRS. Journal of accounting and economics53(1-2), pp.34-54.

Rankin, M., Ferlauto, K., McGowan, S.C. and Stanton, P.A., 2012. Contemporary issues in accounting. Milton, Australia: Wiley.

Kedia, S. and Rajgopal, S., 2011. Do the SEC’s enforcement preferences affect corporate misconduct?. Journal of Accounting and Economics51(3), pp.259-278.

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