Free «Critical Review» Essay Sample

Information is power. In the business world as well as in the financial markets, information is everything. Any decision making done in the business world is based on the information provided, which could vary from economic trends, to market trends among others.  Thus, a business reporting model is used by managers and potential investor to analyze the activities carried out in the business to generate income for the company. The business model must be up to date and accurate to give the right value of the business. At the time of its conceptualization, the report mattered a great deal mainly because it offered the facts that were influencing the business society at the time. However, just like all things, change is inevitable.  This means that over the years, the business society has changed hence the report, though educative, is not entirely accurate in the concepts it provides. This is because; these models require constant and regular updating, refinement, convergence and completion so that they can capture the most current turn a rounds in the market.

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The author gives various reasons why the reporting model needs to be changed mainly because the current reporting model does not provide adequate and timely information. Hence potential investors and mangers have to use estimates and assumptions whilst making their decisions, which is an error that can cost the investors a lot of money because accuracy is paramount in any financial transactions.  The key concept discussed in chapter two is the need for an up to date reporting model in businesses. According to the chapter, this timely and accurate information will help managers, investors and all decision making bodies in the company. Currently, these changes are being made regularly by IFAC and the FASB, who revise and update their respective frameworks in an attempt to merge their principles into a single high quality set of related concepts.

The report has had a tremendous impact on the business world especially the International Federation of Accountants (IFAC) and FASB. Based on chapter two findings, the Strategic Plan of IFAC for 2007-2010 and 2011-2014 was implemented in order to help in raising the standards of the profession as well as the upgrading of the international auditing standards.

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Financial reporting gives the actual financial situation of a company. It shows the various transactions, investments as well as any other activities which influence the wealth creation and profit maximization process of the company. The model of business reporting, thus, can be defined as a tool used by investors to identify and analyze the current financial situation and opportunities for business offered; therefore, it is one of the most vital reports any organization can have since it determines the investors’ decisions pertaining to the company.

The report also gives the various recommendations and proposals that can be used to improve the reporting models used by companies. Times have changed and the models have to bee adjusted to suit the market trends of supply and demand.  The report expounds in details the importance of having reliable financial statements. According to the report, reliable data helps those entrusted with the obligation to run the business to make wise decisions that promote wealth creation in the business.  Investors focus on the various ways that companies create value as well as the value generation process of the company, and finally how this value is dispersed and accrued within the confines of the company. (CFA Institute, 2007).

The report further urges investors to critically evaluate every financial record, for example balance sheets, in the company in order to get the true picture of how the company is fairing. This way, the investors will be able to tell whether or not their investments are increasing or decreasing in value. Thus, the business reporting model serves the major role of communicating the business’ financial processes to investors so that they can effectively assess their investments in the company. Companies are obliged to provide this information since it would be more cumbersome, time wasting and expensive for investors to individually seek it out on their own. This also shows the company’s commitment towards increasing the investors’ wealth, hence gaining their complete trust.

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The financial crises rocked the global economy and up to date, some of its effects are still felt. Thus, at the time this report was getting written, it effectively served its purpose since it emphasized the need for companies to adapt better frameworks fro their models to suit the changing trends in the market. (Hopwood 2009) Thus, the report was not only timely at the time but it also served as a reminder for companies that there is an urgent need to upgrade their systems and communication in order to survive in the 21st century. Some of the most crucial records companies are supposed to keep are up to date Comparative Balance Sheets, comparative Statements of Changes in Net Assets, Comparative Cash Flow Statements and Reconciliation of Financial Position of the company (Penman, 2007).These records should extend over a given financial period preferably a year or more and should contain all transactions carried out by the company in order to give a definite value of the company’s assets and liabilities.

The last chapter focuses on disclosures, which are used in financial records to give the reader/investor more information regarding the business. There are several forms of disclosures, however, in the long run; they all serve the purpose of offering the investor additional information that could help them to make sound decisions pertaining to their investments. The information provided gives investors the chance to understand the variables used in the financial documents. This could either be their risk exposures or their measurement properties. (CFA Institute, 2007).

In conclusion, although the report fails to apply the new approaches to published accounting information, it strongly emphasizes the need fro change especially in the reporting models frameworks of businesses. (Penman, 2007).The greatest risk to any business is ignorance. The report shows the urgency of businesses to upgrade their frameworks of reporting models. This would save the businesses from a lot of potential risks that would arise from inaccurate financial records as well as massive losses. Business records help those running the business to effectively predict the economic and business trends, thus, if the framework used to present the reporting models is faulty, the information presented will also be faulty, resulting in poor decisions. This report was written at a time when the economy was going through turbulent times; therefore, the knowledge it impacted on the readers was meant to ensure that the companies are better prepared for such an eventuality in the future. (Hopwood 2009) The report mainly emphasizes on the need for businesses to keep timely, accurate and detailed records, especially financial records. This, according to the report, will help in crucial decision making by the stock holders, stake holders, the partners and other relevant personnel in the business.

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