Overview of Accounting and Financial Reporting Best Practices

GENERAL OVERVIEW OF ACCOUNTING AND FINANCIAL REPORTING BEST
PRACTICES AND STRATEGIES
Prof. Godwin Emmanuel Oyedokun
godwinoye@yahoo.com
+2348033737184, & +2348055863944
Professor of Management & Accounting
Lead City University, Ibadan, Nigeria
BEING A PAPER PRESENTED AT THE DACA CONSULTS LIMITED IN COLLABORATION WITH INSTITUTE OF CHARTERED
ACCOUNTANTS OF NIGERIA (ICAN) IKEJA DISTRICT AND SOCIETY TRAINING PROGRAM HELD AT KOLTOL GUEST
HOUSE, AGODI IBADAN DATED 16TH JUNE, 2021.

 Generally, accounting and financial report analysis entails the process of
examining a company’s performance in the context of its industry and
economic environment in order to arrive at a decision or recommendation.
Often, the decisions and recommendations addressed by financial analysts
pertain to providing capital to companies specifically, whether to invest in
the company’s debt or equity securities and at what price.
 Overall, a central focus of financial analysis is evaluating the company’s
ability to earn a return on its capital that is at least equal to the cost of that
capital, to profitably grow its operations, and to generate enough cash to
meet obligations and pursue opportunities. Fundamental financial analysis
starts with the information found in a company’s financial reports. These
financial reports include audited financial statements, additional disclosures
required by regulatory authorities, and any accompanying (unaudited)
commentary by management.
INTRODUCTION

INTRODUCTION/2
 To ensure a complete and internally consistent reporting, IAS and FASB
embarked to develop a common conceptual framework that would provide a
foundation for developing future accounting standards and is essential to
fulfilling the Boards’ goal of developing standards that are principles-based,
internally consistent, internationally converged, and that lead to financial
reporting that provides the information needed for investment, credit, and
similar decisions.
 The framework, which will deal with a wide range of issues, will build on the
existing IASB and FASB frameworks and consider developments since they
issued their original frameworks (IASB challenges). IASB and FASB´s need
to identify the differences between IFRS and GAAP and find the best global
solutions to these differences to eliminate variety of differences between
International Financial Reporting Standards (Rimmel 2009). The project to
revise the existing IASB and FASB Conceptual Frameworks will involve the
examination of the foundations of financial reporting and, indeed,
accounting itself.

OVERVIEW OF ACCOUNTING AND FINANCIAL REPORT
 Financial Statements represent a formal record of the financial activities of an entity.
 These are written reports that quantify the financial strength, performance and liquidity of a
company.
 Financial Statements reflect the financial effects of business transactions and events on the entity.
 The financial statements are prepared on the basis of recorded facts. The recorded facts are these
that can be expressed in monitory terms.
 The accounting records and financial statements are from those records are based on historical
costs.
 The financial statements are prepared periodically for the accounting period. Financial statements
are intended to be understandable by readers who have "a reasonable knowledge of business and
economic activities and accounting and who are willing to study the information diligently."

TYPES OF FINANCIAL REPORTING
INCOME
STATEMENT
BALANCE
SHEET
 There are three main
financial statements that
every company creates and
monitors:
 Companies use these
financial statements to
manage the operations of
their business and also to
provide reporting
transparency to their
stakeholders. CASHFLOW
STATEMENT
OVERVIEW OF ACCOUNTING AND FINANCIAL REPORT/2

BALANCE SHEET
 The balance sheet is a report of a
company's financial worth in terms of
book value. It is broken into three parts
to include a company’s
assets, liabilities, and shareholders'
equity.
 Short-term assets such as cash and
accounts receivable can tell a lot about
a company’s operational efficiency.
 Liabilities include its expense
arrangements and the debt capital it is
paying off.

INCOME STATEMENT
 The income statement breaks down the revenue a company
earns against the expenses involved in its business to provide
a bottom line, net income profit or loss.
 The income statement is broken into three parts which help to
analyze business efficiency at three different points. It begins
with revenue and the direct costs associated with revenue to
identify gross profit.
 It then moves to operating profit which subtracts indirect
expenses such as marketing costs, general costs, and
depreciation. Finally, it ends with net profit which deducts
interest and taxes.
CASH FLOW STATEMENT
 The cash flow statement provides an overview
of the company's cash flows from operating
activities, investing activities, and financing
activities.
 Net income is carried over to the cash flow
statement where it is included as the top line
item for operating activities.
{CONT}

 The main objective of general financial reporting is defined as providing
information about financial position, performance and changes in financial
position of an entity that is useful to a wide range of users in making economics
decisions such as present and potential equity investors, lenders, and similar
resource allocation decisions (Rachez 2009).
 Relevance, faithful representation, comparability (including consistency) and
understandability are identified among the characteristics of financial
information that make the decision-useful.
 The objective of financial reporting is the foundation of the conceptual
framework. Other aspects of the framework (qualitative characteristics,
elements of financial statements, recognition and measurement) will build on
that foundation with the aim of ensuring that financial reporting achieves its
objective (FASB 2009a).
OBJECTIVES
OF FINANCIAL
REPORTING

INTERNATIONAL ACCOUNTING STANDARD BOARD
 The IASB is an independent accounting standard-setting body, based in London. It consists of 15 members
from nine countries, including the United States. The IASB began operations in 2001 when it succeeded the
International Accounting Standards Committee.
 It is funded by contributions from major accounting firms, private financial institutions and industrial
companies, central and development banks, national funding regimes, and other international and
professional organizations throughout the world.
 While the AICPA was a founding member of the International Accounting Standards Committee, the IASB's
predecessor organization, it is not affiliated with the IASB. The IASB neither sponsors nor endorses the
AICPA's IFRS resources website. The IASB’s mission is to develop the IFRS and bringing financial markets
transparency, accountability, and efficiency worldwide.
 A monitoring board of public authorities oversees the nonprofit organization and serves the public interest by
fostering trust, growth, and long-term financial stability for the global economy. The organization’s
governance and due process keep its setting of standards independent of special interests while ensuring
accountability to stakeholders around the globe.

 To formulate and publish in the public interest, accounting standards
to be observed in the presentation of financial statement and to
promote their worldwide acceptance and observance;
 To work generally for the improvement and harmonization of
regulations of accounting standards and procedures relating to the
presentation of financial statements (Oti 2002) and
 To contribute to the development and adoption of accounting principles
that are relevant, balanced and comparable internationally and to
encourage their observance in the presentation of financial
statements.
INTERNATIONAL ACCOUNTING STANDARD BOARD/2
OBJECTIVES
OF IASB

FINANCIAL ACCOUNTING STANDARD BOARD
 The FASB’s Conceptual Framework has a similar status as the IASB’s Conceptual Framework. That is, the FASB
uses its Conceptual Framework (Concept Statements) when developing standards. The FASB’s Concept
Statements are not authoritative.
 Some of FASB’s standards are inconsistent with the Concept Statements. The Concepts Statements do not
override authoritative standards. If accounting for a transaction or event is not specified in authoritative
generally accepted accounting principles (GAAP), an entity first must consider accounting principles for similar
transactions or events within authoritative GAAP and then consider non-authoritative guidance from other
sources (including Concepts Statements).
 The following is a chronology of some of the key events in the evolution of the international convergence of
accounting standards.
• The 1960s—Calls for International Standards and Some Early Steps
• The 1970s and 1980s—An International Standard-Setting Body Takes Root
• The 1990s—The FASB Formalizes and Expands its International Activities
• The 2000s—The Pace of Convergence Accelerates: Use of International Standards Grows Rapidly, the FASB and
IASB Formally Collaborate, and the U.S. Explores Adopting International Accounting Standards.

 The eight phases of financial reporting project is a
joint move by the IASB and FASB aimed to cover the
entire spectrum of financial reporting, from the
objectives and desired characteristics of financial
reports, to the definition of the elements, the
recognition and measurement of those elements,
the form and content of financial reports.
 Of all the eight phases, only four have been
implemented
PHASE A
The Objectives and Qualitative Characteristics phase
The aim of the first phase is to consider:
• The objective of financial reporting,
• The qualitative characteristics of financial reporting information and
• The trade-offs among qualitative characteristics and how they relate to
the concepts of materiality and cost-benefit relationships (FASB
2009b).
PHASES OF IASB AND FASB FINANCIAL REPORTING

PHASE B (THE ELEMENTS AND RECOGNITION PHASE)
This phase focused on the definition of two basic elements;
i. Assets and
ii. Liabilities.
The objectives of this phase are to refine and converge the Boards frameworks as follow:
 Revise and clarify the definitions of asset and liability,
 To resolve differences regarding other elements and their definitions and
 To revise the recognition criteria concepts to eliminate differences and provide a basis for resolving issues such as
derecognition and unit of account (FASB 2009c).
The asset definition of an asset has hitherto received most attention in Phase B, for the reason that this will provide the
foundation for the other elements in the ‘balance sheet’ approach. The current IASB Framework has defined an asset as: “An
asset is a resource controlled by an entity as a result of past events and from which future benefits are expected to flow to
the entity” (Whittington 2008). The new definition deletes two significant phrases from the original: ‘as a result of past
events’ and ‘from which future benefits may be expected to flow’. Both of these are likely to affect the recognition criteria.
PHASES OF IASB AND FASB FINANCIAL REPORTING/2

PHASE C: THE MEASUREMENT PHASE
 The objective of the Measurement phase is to provide guidance for selecting measurement bases that satisfy the
objectives and qualitative characteristics of financial reporting and to create specific measurement concepts, principles,
and terms (FASB 2009d).
 Measurement is a critical aspect of financial reporting; however, it is also one of the most under-developed and
incomplete areas of the current conceptual frameworks and has been affected most by the passage of time (McGregor
&Street 2007).
 The FASB and IASB frameworks just simply provide a list of measurement bases used in present practice and indicate
that the use of different bases is expected to continue. Neither of the current frameworks provides any analysis of the
strengths and weaknesses of the various measurement bases, nor do they offer any guidance on choosing among the
listed bases or considering other alternatives (FASB 2007).
 The overall objective of the new measurement framework is therefore to fill in these gaps in coverage, so that standard-
setters will have clear, up-to-date guidance to use in determining the measurement requirements for specific accounting
standards.

PHASE D: THE OBJECTIVE OF REPORTING ENTITY PHASE
 This phase of the conceptual framework deals with the reporting entity and has made more progress than phase C,
the measurement, probably because it is less controversial (Whittington 2008). The objective of this phase of the
project is to develop a reporting entity concept for inclusion in the boards’ joint conceptual framework.
 Like the other phases of the joint conceptual framework project, the reporting entity phase concentrates on
developing a reporting entity concept in the context of general purpose financial reporting. But the boards still need
to determine what constitutes a reporting entity for the purposes of financial reporting (FASB 2009e).
 The term reporting entity, in its most general sense, refers to the entity that is the subject of a particular set of
financial reports. The General purpose of financial reports is to provide information about a particular reporting
entity. Those reports provide information about the entity’s economic resources, claims on those resources, and
the effects of transactions and other events and circumstances that change an entity’s resources and the claims on
them. It is the entity itself that is the subject of financial reporting, not its owners or others that have an interest in
the entity.
 There is a distinction between the subject of general purpose financial reports and the users of those reports like
equity investors and lenders. (FASB 2008). The boards’ current existing conceptual frameworks do not contain a
reporting entity concept. As a result of this, neither framework specifically addresses the reporting entity concept.

INTERNATIONAL FINANCIAL REPORTING STANDARD
IFRS cover a wide range of accounting activities. There are certain
aspects of business practice for which IFRS set mandatory rules.
 Statement of Financial Position: This is also known as a balance
sheet. IFRS influence the ways in which the components of a
balance sheet are reported.
 Statement of Comprehensive Income: This can take the form of
one statement, or it can be separated into a profit and loss
statement and a statement of other income, including property
and equipment.
 Statement of Changes in Equity: Also known as a statement of
retained earnings, this documents the company's change in
earnings or profit for the given financial period.
 Statement of Cash Flow: This report summarizes the company's
financial transactions in the given period, separating cash flow
into Operations, Investing, and Financing.
 International Financial Reporting Standards (IFRS)
are a set of international accounting standards
stating how particular types of transactions and
other events should be reported in financial
statements.
 IFRS are issued by the International Accounting
Standards Board, and they specify exactly how
accountants must maintain and report their
accounts. IFRS were established in order to have a
common accounting language, so business and
accounts can be understood from company to
company and country to country.

 IFRS 1: First-time Adoption of International Financial Reporting Standards
It sets out the procedures that an entity must follow when it adopts IFRSs for
the first time as the basis for the preparing the general purpose financial
statements. This IFRS grants limited exemptions from the general requirement
to comply with each IFRS effective at the end of its first IFRS reporting period
 IFRS 2: Share-based Payment
It requires an entity to recognize share-based payment transactions (example:
granted shares, share options, or share appreciation rights) in its financial
statements, also including transactions with employees or other parties to be
settled in cash, other assets, or equity instruments of the entity. Specific
requirements are included for equity settled and cash settled share based
payments transactions, as well as those where the entity or supplier has a
choice of cash or equity instruments
INTERNATIONAL FINANCIAL REPORTING STANDARD/2
THE UPDATED LIST OF IFRS
AS AT 2021:

IFRS 3: Business Combinations
It outlines the accounting when an acquirer obtains control of a business e.g. an
acquisition or merger. Such business combinations are accounted for ‘using the
acquisition method’, which generally requires assets acquired and liabilities
assumed to be measured at their fair values at acquisition date.
IFRS 4: Insurance Contracts
It applies, with limited exceptions, to all insurance contracts (including reinsurance
contracts) that an entity issues and to reinsurance contracts that it holds.
IFRS 5: Non-current Assets Held for Sale and Discontinued Operations
It outlines how to account for non-currents assets held for sale (or for distribution
to owners). In general terms, assets held for sale are not depreciated, are
measured at the lower of carrying amount and fair value fewer cost to sell, and are
presented separately in the statement of financial position.

IFRS 6:Exploration for and Evaluation of Mineral Assets
It has the effect of allowing entities to adopt the standard for the first time to use accounting policies for
exploration and evaluation of assets that were applied before adopting IFRSs
IFRS 7: Financial Instruments: Disclosures
It requires disclosure of information about the significance of financial instruments to an entity, and the
nature and extent of risks arising from those financial instruments, both in qualitative and quantitative
terms. Specific disclosures are required in relation to transferred financial assets and a number of other
matters.
IFRS 8: Operating Segments
It requires particular classes of entities (essentially those with publicly traded securities) to disclose
information about their operating segments, products and services, the geographical areas in which they
operate, and their major customers.
IFRS 9: Financial Instruments
It is the International Accounting Standard Board’s replacement of International Accounting Standard 39
Financial Instruments: Recognition and Measurement.

IFRS 10 Consolidated Financial Statements
It outlines the requirements for the preparation and presentation of consolidated financial statements,
requiring entities to consolidate financial entities it controls.
IFRS 11 Joint Arrangements
It outlines the accounting by entities that jointly control an arrangement.
IFRS 12 Disclosure of Interests in Other Entities
It is a consolidated disclosure standard requiring a wide range of disclosures about an entity’s interests in
subsidiaries, joint arrangements, associates and unconsolidated ‘structured entities’.
IFRS 13 Fair Value Measurement
It applies to IFRSs that require or permit fair value measurements or disclosures and provides a single
IFRS framework for measuring fair value and requires disclosures about fair value measurement.

 IFRS 14 REGULATORY DEFERRAL ACCOUNTS
It permits an entity which is a first-time adopter of IFRS to continue account, with some limited changes,
for ‘regulatory deferral account balances’ in accordance with its previous GAAP, both on initial adoption of
IFRS and in subsequent financial statements.
 IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS
It specifies how and when an IFRS reporter will recognize revenue as well as requiring such entities to
provide users of financial statements with more informative, relevant disclosures.
 IFRS 16: LEASES
It specifies how an IFRS reporter will recognize, measure, present, and discloses leases.
 IFRS 17: INSURANCE CONTRACT
IFRS 17 is applicable or yearly reporting periods starting on or after 1st January 2021. This must be
accommodated with IFRS 9 and IFRS 15.

NIGERIA ACCOUNTING STANDARD BOARD
The Nigeria Accounting Standard Board (NASB) was established in 1982 as a private sector initiative
closely associated with the Institute of Chartered Accountants of Nigeria (ICAN). NASB first became
a government parastatal in 1992 as a component of the then Federal Ministry of Trade and Tourism.
The NASB issued a total of 32 Statement of Accounting Standards (SAS).
The Nigerian accounting standard board which is now replaced with Financial Reporting Council
(FRC) was established with the following objectives:
 To formulate and publish in the public interest, accounting standards to be observed in the
preparation of financial statements and to promote the general acceptance and adoption of such
standards by preparers and users of financial statements.
 To promote and sponsor legislation, when necessary in order to ensure that standard developed
and published by the board receive nation-wide acceptance, adoption and compliance.
 To review from time to time, the standards developed by the board in the light of changes in the
social, economic and political environment.

 They give accountants and auditors some measure of
protection from those who may try to pressurize them into
using improper methods and assume their independence
 They ensure that all stakeholders make contribution into the
standard formulation and as such enrich the quality; they
usually conform to internal accounting standards
 They usually conform with all existing law and regulation
requirements, for example, CAMA 1990, BOFIA 1991, and
Insurance Act 2003;
 The standards are reviewed periodically to conform to latest
economic and social developments; and
 The enactment of the NASB Act, 2003, gives it power to
enforce compliance with standard.
BENEFIT OF ACCOUNTING
STANDARD
NIGERIA ACCOUNTING STANDARD BOARD/2

APPROACHES/ BEST PRACTICES TO STANDARD SETTING
APPROACHES TO
STANDARD SETTING
FREE-MARKET APPROACH
 The basic assumption of the free-market approach is that accounting
information is an economic good similar to other goods and services. As
such, it is subject to the forces of demand and supply; demand by interested
users, and supply by entities in the form of financial statements.
 Through the interaction between the market forces, equilibrium is reached,
where an optional amount of information is disclosed at an optimal price.
Where a given piece of information is demanded, the market will generate
the information if the price offered is right.
 The market is thus presented as the ideal mechanism for determining the
types of information to be disclosed, the recipient of the information and the
accounting standards to govern the production of such information.

REGULATORY APPROACH
 Advocates of a regulatory approach to accounting standard seems to
believe that market failures or anomalies and perceived asymmetry in
regards to the quantity and quality of financial information available to
various interested parties, which lead to a decline in investor
confidence, can be rectified through regulation.
 Furthermore, particularly, though accounting standards may be used to
prepare and represent undistorted financial statement, it will also
assist auditors and regulatory agencies as it provides clear guidelines
for reporting, verification and overseeing purposes, respectively
(Rahma, Perera & Tower, 1992).
APPROACHES/ BEST PRACTICES TO STANDARD SETTING/2

LAPSES ASSOCIATED WITH ACCOUNTING STANDARDS
 They inhibit initiative; Accounting standards inhibit initiatives as decision has already been made. This will
restrict the financial reporter (Accountant) from using his initiative as he is compelled to follow the laid
down rules in the standard (ICAN, 2006).
 They rarely take accounting of peculiarities of individual business: It is said and seen that all fingers are not
equal, some business enterprises are different and unique based on their lean activities, capital and location.
These factors affect the operation or report of business directly and indirectly.
 Accounting standards give base and general rules on how financial activities of business organizations are to
be accounted and reported without looking at the peculiarities of the small and medium enterprises (Oti,
2002)
 Standards are watered-down through exposure drafts: Accounting standards are subject to lobbying,
debates, negotiations, comments pressures and compromise. When proposed standards are issued out for
public comment and contribution, these interested parties or intended users come together to reform these
standards through their opinions in such a manner that will suit their personal and organization interests

CONCLUSION AND RECOMMENDATIONS
 The objective of the conceptual project to develop an improved common conceptual framework that gives a sound
foundation for developing future accounting standards is an obtainable and realistic objective.
 There have been some changes from the currently existing frameworks, which might lead to some difficulties at
first, because of the new definitions. Such as the definition of an asset, this deletes two significant phrases from
the original. Both of these would probable to affect the recognition criteria.
 The biggest difference in the joint conceptual framework compared to the existing frameworks is the removal of
the management’s stewardship as an independent objective of the financial reporting. Other modifications have
been made compared to the present FASB framework such as replacing the hierarchy of qualitative
characteristics with a sequential process approach and it also replaces the concept of reliability with faithful
representation.
 There have also been some changes from the IASB -Framework where both neutrality and prudence were used.
Prudence has been eliminated due to being too cautious and therefore giving an influenced view of the reporting
entity. It has agreed upon that neutrality is of larger importance and it is incompatible with prudence and
therefore prudence has been left out of the conceptual framework.

CONCLUSION AND RECOMMENDATIONS
 Phase C, the measurement, which is the most under-developed area of the framework. This phase is
in an early stage and a lot of work is needed to be done.
 None of the current frameworks provides any analysis of the strengths and weaknesses of the
various measurement bases, nor do they offer any guidance on choosing among the listed bases or
considering other alternatives.
 It’s important that the boards find a good starting point and develop a clear and up-to-date guidance
for standard-setters to use in determining the measurement requirements for specific accounting
standards, because the measurement is a critical part of financial reporting.
 It’s hard to say if IASB and FASB are going to achieve the main objective of the joint conceptual
framework, because that not all phases are active and it’s too early to draw any drastic conclusions.
But IASB and FASB´s joint conceptual framework is off with a good start.

Overview of Accounting and Financial Reporting Best Practices

Overview of Accounting and Financial Reporting Best Practices

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Overview of Accounting and Financial Reporting Best Practices