7 Factors of Financial Statement Disclosure
Posted On
Financial Statement Disclosure is the basis of transparency that can reduce wrongdoing and errors. A “financial statement disclosure” is a report that recognizes the financial position of a company. It also provides relevant internal and external information about a firm or a company’s financial strategies to experts, stakeholders, and future investors.
Financial disclosure include data related to reports of stakeholder’s equity, net sales, balance sheets, cash flow, and revenue statements, and strategies of accounting that are practiced in the business operation.
The International Auditing and Assurance Standards Board (IAASB) in recent years has set high-quality auditing standards for assurance, quality control, and related services standards to increase the consistency and quality of practice by qualified accountants across the globe. The IAASB focuses on building public trust in the global auditing profession. As per International Accounting Standards (IASs) and International Financial Reporting Standards (IFRs), it’s a legal requirement for all companies to disclose their financial policies publicly. This permits transparency in the system and aids in maintaining a standard reporting format.
A good financial consulting firm will take into consideration various factors at the time of auditing disclosures in financial statements, such as:
1. The scale of the firm
The scale of the firm is one of the most crucial factors that impacts the level of financial statement disclosure. Scaling implies a firm is being able to take on the increased load in a cost-effective way and meet the demands of its business without suffering. Scaling is also very important for sustainable growth. A proper approach is required for scaling a business that focuses on increasing profits and efficiency at the same time. Disclosing such information to the public will attract more investors.
2. Life of the firm:
The companies which have sustained for a reasonable period of time have a positive effect on the financial disclosure. The perpetual businesses will have an exemplary disclosure as it has enhanced over a period of time.
3. Board size:
The board of directors will take care of the company’s operations in a manner that is favourable to the business. They also exercise the power to observe and control the management. This will reduce the difference of opinion and conflict between the manager and investors. An organization with a more independent board of directors will benefit from better financial disclosure.
4. Audit status:
An audit is essential as it gives reliability to financial reports. It also ensures that the firm’s financial statement complies with the law. Audit firms assure the realistic representation and objectivity of the financial statements. It is also a basis for an investor to make an investment decision. Therefore, big auditing firms are more concerned about their status and, therefore, focus on the quality of the financial disclosure.
5. Return on Equity
Return on equity is another essential factor for better financial disclosure. It helps measure a firm’s proficiency in handling the shareholders’ money, which they invested in the company. Such companies will also generate more capital at the lowest price.
6. Foreign ownership:
Foreign ownership refers to foreign direct investment in the country. When a business is owned and controlled by people who are not citizens of that country, it is certainly related to information disclosure in accounting statements. A good finance consulting firm will collaborate closely with their clients, assisting them in minimizing risks and also seizing opportunities.
7. Financial Leverage:
It implies using borrowed money to finance the assets. Therefore, companies with high financial leverage must disclose such information to confirm the loan amount, future plans, and business partners, etc.
Why choose us?
Komplytek, deliver illustrious Finance and Accounting outsourcing services to enhance and assist the complete finance and accounting function. Our prior aim is to reduce the operative expenses, provide high-quality service within a quick turnaround time, and set standards for grander corporate regulation and compliance. We also set up a user-friendly accounting system on widely used accounting software that will assist your company’s finance program and delineate financial strategy.
Get on a FREE Consultation Call with us today!
