The Future of Financial Reporting: Insights from Research.

INTRODUCTION

In the business world, the Financial report is an important reference for investors to decide whether to invest or not in the company. The financial report also serves as a back-up of boards of members and executive members looking at the status of their company's achievements every year.

Unfortunately, in fact, investors and the board of members actually do not get accurate and true information about their company's financial status. This is because there are some weaknesses in the financial reports that can ultimately bring harm to a company.

Hence, an article was written by an experienced Accountant named Mary E. Barth in the title The Future of Financial Reporting: Insights from Research. Let me share some of her experiences and qualifications. Mary E. Barth is a Faculty Fellow at Stanford Business Graduate School and specializes in research related to Financial Accounting and Reporting Issues. She also served as the External Audited Committee at the International Monetary Fund and an audit partner at Author Anderson & Co (1974-1985). Her experience as an academic and corporate-in-charge enabled her to write this article. It proved him not rhetoric, but a practical one.

In this article, Mary would like to invite readers to take a serious look at the importance of integrating the research report into the financial report. To reinforce his point of view, Mary has shared some items in the financial that are the basis of the idea of this article in writing. Specifically, he placed 5 performances namely Fair Value, Intangible Assets, Risk and uncertainty of Assets Value, Conservatism and Earning Management.

I agree with her because the financial report made without including the Research aspect is feared to be more favorable to the management than to provide good returns to investors.

however, the idea of incorporating this research into the financial report will increase the cost of spending on hiring staff, adding time to making the report, and requiring careful document and research, this will give additional management overload.

However, if the accuracy and correct information are important for the financial report, then it is not wrong if the management allocates a small amount of capital to get a better return on investment.

SUMMARY

Before I comment on this article, allow me to elaborate a little bit on how this article is written.

In the first 6 paragraphs, Mary tried to explain the purpose and objective of this article, which incorporated Research Financial into the Financial Report. According to him, the advantage of merging research finances with this financial report is to provide better information to the capital market. She also shared about the reality of the accounting diagram which is contrary to the Perception of accounting diagram.

This 'Reality of Accounting' diagram stands in contrast to the 'Perception of Accounting' diagram on the right-hand side of Figure 1, which depicts the focus of accounting as record-keeping and the creation of financial reports according to a set of rules. This diagram reflects many individuals 'perceptions of' What is Accounting? (refer to Figure 1)

She then submitted 5 items that should be improved either from the calculation formula, the accuracy of the information or the integrity of the financial statements. Let me elaborate, one by five items are Fair value, Intangible assets, Risk and uncertainty of assets Value, Conservatism and Earning management.

1. Fair Value

What is Fair Value, the author briefly defines the fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date that is, an exit price in an orderly transaction, not a forced liquidation or sale '(IASB, 2011)?

Writers of fair value in the financial report include three important aspects. First is Fair value estimates have too much estimation error. The consequence is, research would not be able to find the result. In the article, he presented a graph on this issue. there are three distributions with different dispersion arising from different levels of estimation error, but all are centered on the mean of 15. How much error-that is, how much dispersion-is 'too much' is usually not defined (refer Figure 2)

Second, the effect of change in own credit risk in the fair value of liabilities. She wrote that some research finds evidence that equity investors understand those effects, and reflect the effects in their valuation decisions (Barth et al., 2008). Furthermore, this is consistent with finance theory, for some, these effects are counterintuitive.

Third, her worries about the profit or loss in a world with extensive fair value accounting would lack meaning. He states that This concern arises, at least in part, because changes in values are unpredictable, and managers and investors do not like unpredictable profit or loss. Predictability and persistence are used by academics as indicators of high-quality earnings

this is among her three worries about Fair Value.

2. Intangible Asset

In this article, the author did not write clearly on the definition of Intangible Asset, he only stated that intangible assets represent a significant part of the financial report. It is even important for investors to know about this intangible asset.

Anxiety associated with an intangible author is because valuation theory is clear that profitability is key to firm value, not just revenue! Research also suggests it is possible to estimate values for these assets-such as intangible asset revaluations and brand value estimates (Barth and Clinch, 1998; Barth et al., 1998)

In addition, she also states fair values of difficult-to-estimate financial assets and liabilities, these value estimates are not fraught with so much estimation error so as to lack relevance.

He mentioned again, although asset research is not new, fixing the problem never seems to get traction. and why these problems cannot be overcome or why ignoring these assets results in better information for outside providers of capital

3. Risk and Uncertainty of Asset Values

Mary said that information about risks and uncertainties associated with a firm's assets has received less attention in the financial reports. it is because of disclosure largely comprise generalities and omit quantitative measures of the information including market risk, liquidity risk and credit risk in the financial report.

The writer also exemplifies, regarding Oil and Gas companies in Canada that have been distributing information on risk and uncertainty values in their Financial Reports, which has caused many investors to not react to this company. She also provided an example as contained in Diagram Figure 5.

The above issues can be solved if each information is included with the exact research report.

4. Conservatism

The authors state that this conservatism was embedded in the soul of the accountant, and some even believed that it was profitable. But she stated again that academics recognize that accounting profit can not understate economic profit forever. He further stated that, academics classify conservatism as unconditional.

She questioned why the accountants still did, Is it simply because we have always done it that way? and why would decision-makers want biased information?

In another research proves that conservatism is not always better, for example, in the context of debt contracts, theoretical shows that conservatism can make debt contracts less efficient because conservatism can trigger debt covenants and thus potential lender intervention.

The author also shares in Figure 6, the line on top, which pertains to announcements of earning with less conditional conservatism compare to high conditional conservatism.

These findings suggest conditional conservatism reduces the transparency of earnings.

5. Earning Management

According to mary, Earning Management can be used to convey information to which only the firm has access or to achieve opportunistic ends, eg improving performance-based compensation managers.

She also said that the use of judgment in accounting creates scopes for earnings management, yet the use of judgment is the only way to convey information.

She also pointed out that, the real questions are, whether there is a tolerable amount of earn management.

so, this is a summary that can be made from the entire article written by Mary. His writing really proves that he has extensive experience in the accounting world

EVALUATION CRITERIA

In my observation of this writing, the accuracy of the information in this article is very good. The author includes 6 figures (consisting of diagrams, graphs and so on) as additional information.

In order to complete this article, the author has also referred to over 30 references from various reading materials and journal writers.

Overall, the author tries to explain well for the whole key terms. But if this article is read by laymen, I'm pretty sure it will be hard to understand.

In addition, there are several key terms that are not well-defined, ie Intangible asset, she does not define its meaning with the exact meaning, nor Conservatism and Earning Management.

As a result, readers who are not from the field of accounting, it may be difficult to understand the essence of this article.

Of the whole article, there are some hidden assumptions detected, among others, the author mentioned that, if this financial report was not included with financial research, then investors would be reluctant to invest in a company. This statement is seen as a fact with a hidden assumption, the author does not provide clear evidence.

In terms of language use, I raised a high level of enthusiasm and author in upholding professionalism in writing this quality article. I am convinced that many accounting practitioners admire the form and language of his writing,

However, once again it is worth mentioning that, when this article is read by non-cashing practitioners, it is certainly going to be a boring article and full of burdensome facts and key terms.

From the point of view of this article, I think that the author is indeed a well-organized and framed worker in producing an article.

The paragraphs and sections he uses, give a big picture of what he wants to convey

RESPONSE

I agree with the author to integrated research into the financial report. I am confident it will further improve the accuracy of Financial Report information as well as provide investors with clearer information to make decisions.,

This is true as it has been written in one writing, the paper is a commentary on the future of financial reporting in Europe and on how research into accounting issues can be relevant to policymakers (https://www.sciencedirect.com/science/article /PII/S0263237317301494)

The ultimate merit that can be given to the author is when he is able to state the liquidity found in the Financial Report and how Research is able to paste the leak from the liquidity.

For example, Information in Fair Value, where too many estimation errors cause liquidity to the accuracy of information to buyers or investors.

Additionally, allow me for an article related to this title, the article mentions.

"in a perfect world, investors, board members, and executives would have full confidence in companies’ financial statements. They could rely on the numbers to make intelligent estimates of the magnitude, timing, and uncertainty of future cash flows and to judge whether the resulting estimate of value was fairly represented in the current stock price. And they could make wise decisions about whether to invest in or acquire a company, thus promoting the efficient allocation of capital."

"Unfortunately, that’s not what happens in the real world, for several reasons. First, corporate financial statements necessarily depend on estimates and judgment calls that can be widely off the mark, even when made in good faith. Second, standard financial metrics intended to enable comparisons between companies may not be the most accurate way to judge the value of any particular company—this is especially the case for innovative firms in fast-moving economies—giving rise to unofficial measures that come with their own problems. Finally, managers and executives routinely encounter strong incentives to deliberately inject error into financial statements."

CONCLUSION

I would like to reiterate that integrating research into the financial reports will benefit the accountant profession, will relinquish accountant preeminent position as the providers of information on which all important economic decisions are based and giving more prosperity to our society.

Overall, I give a 90% mark for this paper, because the author tried his best to prove his point of view by submitting five examples of information that often became liquid in the financial report, namely Fair value, Intangible Asset, Risk and uncertainty, Conservatism and earning management.

But I hope that language use can be lowered so that readers who are not in the accounting industry can understand well.

I recommend this work as a credible research source because expertise, experienced and practicing authors in the field of accounting should entitle him to write about this issue. Facts and examples of the study are also appropriate and meet the requirements of this issue.

Her proposal to integrate research into a financial report can increase the level of professionalism of the accounting to the society. hopefully, this effort will give investors a high level of confidence and give prosperity to the community. I pray that his efforts to uphold the financial report will have the support and success.

Mohd Hafiz Abd Hamid

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