Effectiveness of Financial Statement

Running head: FINANCIAL ACCOUNTING
Financial accounting
Name of the University
Name of the student
Authors note

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Table of Contents
Answer to Question 1:.....................................................................................................................2
Answer to Question 2:.....................................................................................................................7
Answer to Question 3:...................................................................................................................10
Answer to Question 4:...................................................................................................................14
Answer to Question 5:...................................................................................................................15
Reference list:................................................................................................................................17

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Answer to Question 1:
To,
Chairperson
International standard accounting board (IASB)
30 cannon street, London- EC4M 6XH, United Kingdom
Date: 4th March, 2018
Subject:
Sir,
I am writing this letter that will form a part of recommendations for incorporating the
principles of effective communication in presenting the financial information in the annual report
of company. Such recommendation will help entities in improving the effectiveness of
disclosures for the financial statement users. Being an investor, currently, I am intending to make
investment in stocks of two companies that are listed on the stock exchange of Australia that is
Common wealth bank of Australia (CBA) and National Australia bank (NAB). For the purpose
of evaluation of financial position of both the banking organizations, I have reviewed and
evaluated the annual report of both organizations in respect of the disclosures they are made
regarding their financial data and information. I have come to known with some of the areas
where the disclosure is lacking on different aspects such as comparability and transparency and
have thought of submitting my response towards such disclosure evaluation. Financial
information disclosure presented by company in the annual reports as perceived by the
accounting standard are often faced with some of the issues such as disclosure of insufficient

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information in the notes that do not provide users with accurate picture of financial position of
company (Abernathy et al., 2016). Furthermore, there might be presence of irrelevant
information in the disclosed notes that might not be beneficial for investors to make financial
decision.
While going through the disclosure initiatives as a part of principles of disclosure that is
proposed by International accounting standard, I have come across seven principles that would
help in reducing the difficulties while judging the financial statements. It is believed by the board
that such principles of disclosure would encourage entities for communicating the information in
an effective way and application of better judgment by financial statement users. The seven
principles that I have become acquainted with for increasing the effectiveness of financial
information as proposed by board are clear and simple, comparable, entity specific, organized for
highlighting important matters, information should be in an appropriate format, it should be well
organized for highlighting the important matters, information should be linked to related matters
and disclosed information should be free from any unnecessary duplication. Disclosing the
information in an appropriate manner would involve use of table, charts, lists and graphs
(Klychova et al., 2017).
Providing IASB with the feedback on the disclosure principles would have much valued
by the board as it would help in contributing to the well grounded and robust discussion on the
disclosure principles. From the analysis of the annual report of both organizations, it can be
inferred that NAB as well as CBA lacks on disclosure fronts in several aspects as there are no
sufficient and appropriate disclosures of information that are depicted in the financial statements.
There are no separate presentations of the disclosures that are made in the financial statements. It
has been ascertained from the analysis that organization has not used any segmental approach

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and has not adopted any consistent segment definition in light of some disclosed matters.
Moreover, there is no proper presentation of information as the users will not be able to create
any relationship and thereby it is required by organization to improve the navigation (Trucco,
2015). In addition to this, the information on credit and liquidity risks has been presented
separately. Nevertheless, the information presented in the table format by both the organization
are capable of being compared from year to year and determine the trend of increasing or
decreasing financial information. Therefore, investors are capable of analyzing the trend that
forms an essential part of investment decision process.
In addition to the disclosures that have been identified above from reviewing of annual
report, it is a known fact that for banking institutions that disclosure for banking requirement is
of utmost importance. This is so because Basel is the measures or the reforms that are undertaken
for strengthening the regulations of banking industry. From the annual report analysis of both the
banks, it can be seen that disclosure about requirement of Basel are disclosed adequately in the
notes to financial statements. Another important factor that has been identified in the
presentation of financial information is usage of an appropriate format (Schipper et al., 2017). It
has been identified that there is a difference in presentation of data using an appropriate format.
From the annual report of CBA, it can be seen that financial information has been presented by
making a very restricted use of charts, graphs and tables. NAB on other hand, have not made any
disclosure of financial information using graphs or charts. In addition to this, the divisional
performance of NAB is presented only in the table format and there is no detailed explanation of
the same in the annual report. On other hand, CBA have made appropriate disclosure of the
divisional performance in the notes to financial statements in addition to the table format.

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For improving the communication effectiveness of the presented financial information in
the report, I would like to make some recommendations after ascertaining the area where the
organizations are lacking on disclosure front. The data presentation should be specific to nature
and business of reporting entities as entity specific information’s are regarded as valuable to
investors because general information can be accessed from several sources. For disclosing the
relevant information that is considered essential for decision making of investors, organization
should make use of appropriate format. Some common form of formatting should be used by
organization depending upon the circumstance in which entity operates and their operating
conditions. In addition to this, I would recommend organizations to incorporate use of charts and
graphs for presentation of financial data pertaining to their financial conditions. This is so
because users find it suitable to analyze the financial performance of company by using such
format as it is less time consuming (Jiang et al., 2015). In addition to this, they are able to view
the trend of performance of company over a considerable time periods.
The information presented in the annual report should be linked to other information and
thereby improving navigation so that relationship between pieces of information’s are
highlighted properly. Usefulness of presented information can be increased by easing the
comparability across the reporting period and among the entities. Therefore, as an investor, I
would recommend to the board to make improvement in the disclosures of the financial
information by reporting entity. The recommended principles for enhancing the effectiveness of
communication of financial information are easing comparability, using an appropriate format,
creating linkage to related information, information should be organization specific. It is
essential for board to address the disclosure issues by recommending on using the effective