Over time, major discrepancies have been realized in financial reports, necessitating the related authorities to come up with avenues to mitigate such ethical dilemmas. There is a myriad of issues that can be connected to quality reporting in regards to different financial statements.
Truthfulness and relevance of the information presented in the revenue report are among issues related to quality in accounting. Usually, auditors are supposed to analyze related financial documents to ensure their relevance, faithful presentation of information, comparability, verifiability, timeliness as well as understandability (Nobes & Stadler, 2015). Each of the above core principles in reporting plays an important role in ensuring the overall product conforms to accounting standards spelled out by quality assurance bodies such as FASB, SEC and FIRA. Comparability ensures that regardless of the process used in auditing as well as reporting, the same accounting standards that apply to a given state or country are adhered to. Verifiability ensures the information presented can be proved to be true and is a reflection of a firm or company’s financial undertakings. Timelessness is related to adhering to the time required for the reports to be presented to the relevant authorities. Understandability, as well as relevance, are closely related in that they ensure the information is clear and has no unaccepted deviance from what is expected. Comparability ensures that regardless of the process used in auditing as well as reporting, the same accounting standards that apply to a given state or country are adhered to. Although the above is the main aspect that guides quality in reporting of revenues, in some circumstances, omissions as well misstatement are found in such reports, raising doubt about the authenticity of the information presented. Besides, sometimes the information presented to the necessary authority is not audited by an external auditor as required, giving a chance for ethical issues such as understated or overstated financial aspects to come into play.
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To determine the quality of profits reported by a company, it is important to understand the different methods of inventory valuation. First of all, companies that file their reports under IFRS must use FIFO method while those that file their reports under GAAP are obliged to use LIFO method (Epstein, 2012). Depending on the method used, due to economic factors, the profits made by a company varies. With the above type of knowledge, it is possible for the evaluator to gauge the authenticity as well as the truthfulness of the information presented by the company. It is hence easier to point out mistakes that might be inherent in the reported profits. Besides the above, under each type of inventory valuation, there are rules that are to be adhered to by different companies with regards to discontinued operations as well as impairment charges. In understanding the methods as well as the provisions under each method, it is possible to point out when such standards are not adhered to as well as the implications that such deviations by a company have on the profits it makes. This is because, with such knowledge, one has an idea of where to start in questioning the possible causes of deflated or lower profits by a company.
In conclusion, in most cases, quality related issues in reporting revenue arise as a result of the auditors and the finance of a company not providing truthful information regarding their transactions. Since in most cases it is in a bid to make more profits or introducing fraud, by understanding inventory evaluating methods, it is possible to gauge the quality of the reports as well as profits by a particular company.
References
Epstein, L. (2017). Financial decision making. An introduction to financial reports.
Nobes, C. W., & Stadler, C. (2015). The qualitative characteristics of financial information, and managers’ accounting decisions: evidence from IFRS policy changes. Accounting and Business Research , 45 (5), 572-601.
