Critically evaluate the objective of financial reporting

Feifei Ma

The IASB has retained great success from extend the adoption for different regions，companies could gain benefits when compliant financial standards.Rudhede & Wahlberg（2003）illustrate that the companies which adopted IAS will improve the communication of market.The reason is that the management could explain every disclosure more further.At the conclusion，it infers that management could pay more attention for operating the business and its results by adopting IAS.Furthermore，Ball，Li & Shivakumar（2015）found that after adopting the mandatory adoption of IFRS，the accounting-based debt contract was significantly reduced.In addition，IFRS improves the transparency and amount of information in the financial statements.Therefore，researchers show that the level of compliance became higher in different areas.Al-Shammaria，Brown & Tarca（2008）state that the level of compliance with IAS by companies in some countries increased over time，from 68% in 1996 to 82% in 2002.

However，it has encountered opposition which arises from differences in national accounting cultures at national levels.Accounting cultures in different countries are embedded in the market structure，system，and legal framework of business entities.（Whittington，2008）.Moreover，some studies have concluded that the increase in the amount of information during IFRS is limited to those companies that have greater motivation to comply，or countries that are also improving their execution.（Cascino & Gassen，2015）.It indicates that not every company could gain benefits from IAS in different regions and cultures，and IAS is not suitable for every companies.It will create many issues when companies pay more attention to observe the standards but ignore the communication.

Excessive compliance with accounting standards raises three issues for the financial statements，called not enough related information，too much irrelevant information，and information communicated ineffectively.（International Financial Reporting Standards，2017）.At the present，the world has changed，such as globalization，policy activities carried out globally in response to financial，governance and other crises.Therefore，financial reports need to keep the pace.However，as the report expands and evolves，the biggest problem is that it becomes more and more complex and longer.If he key interdependence has not been revealed，the disclosed gap still could not disappear.Therefore，it is not enough to continue to add and compliant more information，there need make clear the connection and remove clutter on the financial statements.

The report about Cutting Clutter is published by the UK Accounting Standards Board（ASB）.It discussed that annual reports in many countries contain clutter commonly.It relates to all areas of annual reports，not just narrative reporting but highlights the part about the governance，accounting policies and share based payments.

By masking important information and preventing a clear understanding of the business and the problems it faces，the usefulness of annual reports and accounts can be disrupted by clutter.For example，their goal is to achieve the principle of effective communication so as to avoid distracting readers by highlighting important information.Therefore，according to the Financial Reporting Council（2012），in order to make the annual report shorter，the key step is to exclude disclosures which do not meet the objective of financial reporting.In other words，when the committees formulate the disclosure requirements and guidance，it has to consider whether the objectives of the financial report meet the needs of the users.For example，annual reports may include some disclosures required by carbon disclosure or prudential regulators.It is recommended to include additional disclosures in the financial statements.

Therefore，it is significant to inspire companies to improve communication in their own financial statements.Starting to improve the communication is the first challenge to most companies.However，it is much easier for much companies when they finished their first step.Stakeholders are more likely to seek to improve their financial statements if they view the financial statements as a communication tool rather than just a compliance document.（International Financial Reporting Standards，2017）.Thus，there are more key factors to make communicate in different companies.First，the change of communication was supported by senior management.Second，it actively cooperates with investors and identifies its sources of information.Third，make ensure that each company department participates in the communication process.Fourth，the company's auditors，regulators，and national standard setters support the communication process.

Reference list

Al-Shammaria，B.，Brown，P.，& Tarca，A.（2008）.An investigation of compliance with international accounting standards by listed companies in the Gulf Co-Operation Council member states.The International Journal of Accounting，43（4），425-447.doi：https：//doi.org/10.1016/j.intacc.2008.09.003.

International accounting standards board.（2018）.Conceptual Framework for Financial Reporting.London：Retrieved from https：//www.iasplus.com/en/standards/other/framework.

Rudhede，P.& Wahlberg，J.（2003）Implementation of IAS in SKF.Graduate Business School.Available from：http：//www.handels.gu.se/epc/archive/00002756/01/gbs%5Fthesis%5F2002%5F47.pdf