Company Accounting Fundamentals of Corporate Finance

Question: Discuss about theCompany Accounting for Fundamentals of Corporate Finance. Answer: Introduction After the development of Disclosure Initiatives, the International Accounting Standards Board has heard various concerns about disclosure of accounting policies in the financial statements. On one hand, some think that only significant accounting policies must be disclose while on the other hand, few consider that disclosure of all the accounting policies is crucial for better understanding (Horngren, 2013). Disclosure of each accounting policy makes financial statements more understandable. This statement cannot be consider true in every aspect because when disclosures of all accounting policies are made in the financial statements, it facilitates in poor disclosure practices as it becomes difficult to associate such accounting policy to its entity and its activities and to evaluate which accounting policies are the most significant (Horngren, 2013). It has also been observed that even proper guidance about such accounting policies in the preparation of financial statements (IAS 1) is not beneficial as identification of significant accounting policies are not clear and hence it becomes difficult to evaluate which of the accounting policies must be disclosed. Furthermore, the qualitative characteristic of materiality is also hampered when each accounting policy are incorporated in the financial statements. Therefore, the materiality concept cannot be applied that results in systematic pr oblems due to poor disclosures of accounting policies. Moreover, companies that have efficiently streamlined their disclosure initiatives by concentrating on material and relevant information obtain several benefits like enhancement of confidence among the investors (Northington, 2011). This happens because of communication of more meaningful information, improvement of coordination and cooperation throughout the organization comprising of the Board of Directors and with external advisers and regulators, higher effectiveness in the preparation of audit disclosures and investor communication and powerful leadership and market reputation. It may be more productive for a company to aim for particular areas of disclosure that are lengthy or complex instead of incorporating each of the accounting policies that includes both relevant and non-relevant financial information in the financial statements (Kaplan, 2011). On a whole, it can be conclude that when disclosures of accounting policie s goes beyond and deviates from its key purpose, it can lead to information overload in the financial statements (Deegan, 2011). This makes it problematic for the investors and other users to wade through such high volume of information they receive so as to hunt out for information that is the most significant. It can be understood that some users believe that disclosure of all accounting policies facilitates in better understanding of financial statements but the materiality concept will no longer have any existence in such statements and users will have to expend a lot of time in order to arrive at a conclusion. It may be possible that their decisions based on such statements are ineffective because explanation of accounting policies being summaries of IFRS requirements cannot explain and reflect how the accounting guidance is applied in the financial statements of the company in the context of its activities (Davies Crawford, 2012). Therefore, disclosures are very vital for better understanding but only relevant information must form part of the financial statements and the level of understanding provided by such disclosures are surely better than disclosure of all accounting policies that is inclusive of both significant and non-significant information. References Davies, T. Crawford, I 2012, Financial accounting, Harlow, England: Pearson. Deegan, C. M 2011, In Financial accounting theory, North Ryde, N.S.W: McGraw-Hill. Horngren, C 2013, Financial accounting, Frenchs Forest, N.S.W: Pearson Australia Group. Kaplan, R.S 2011, Accounting scholarship that advances professional knowledge and practice, The Accounting Review, vol. 86, no.2, pp. 367383. Northington, S 2011, Finance, New York, NY: Ferguson's. Parrino, R., Kidwell, D. and Bates, T 2012, Fundamentals of corporate finance, Hoboken, NJ: Wiley