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Conceptual Framework for Financial Reporting PDF

   

Added on  2020-11-10

11 Pages2666 Words101 Views
Table of ContentsA.Context Financial Reporting......................................................................................31.Regulatory Framework......................................................................................................3a)The Company Act...............................................................................................................................3b)The Reporting Standards...................................................................................................................4c)Conceptual Framework......................................................................................................................42.Corporate Governance.......................................................................................................5B.Purpose of Financial Reporting.................................................................................61.For BMW’s Stakeholders...................................................................................................62.For BMW’s Growth and Objectives..................................................................................7C.Critical of different regulatory frameworks and governance of Financial Reporting..8Reference.........................................................................................................................11A.Context Financial Reporting.1.Regulatory Framework.When a financial statement is prepared by a company, certain regulations must befollowed to ensure that the entities in that financial statement are used in accordancewith the same rules and regulations to ensure comparative purposes. In addition, thefinancial statements should ensure that the content of the report meets the criteria thatstakeholders of that organization. 1

a)The Company Act. According to the In the Accounting Directives Act, section 264 (2) HGB there is alaw that says "Account should show a TRUE and FAIR view", based on BritishCompany Act, section 149 (Reinke & Müller, n.d.). From that, “True and Fair”view in auditting is defined as financial statements without significant errors andpresented honestly, fully information and financial position of an organization.True argues that financial statements need to be prepared in a practical,accurate and consistent manner like IFRS. In addition, no materialmisstatement is allowed in those reports to avoid misleading thestakeholders. These mistatements can be from material errors or problemsin the transaction (FRC, 2014).Fair suggests that the information in the financial statements should bepresented truthfully with no misleading elements, and reflect the reality ofthe company's transactions (Reinke & Müller, n.d.).2

b)The Reporting Standards.The national accounting standard that BMW Group uses is Handelgesetzbuch orHGB, which is accounting standard of the Germany that the companies shouldprepare in their financial statements in this country (Kenton, 2019). HGB that involve handling the registration of companies in Germany and theregulations that they need to comply with. For example, HGB has rules on the useof commercial brokers, agents and on the establishment and termination ofrelationships with third parties. The responsibilities of HGB include hiring andpaying employees (van Tendeloo & Vanstraelen, 2005).HGB influences performance as well as recording the figures and information inthe financial statements in order to comply with the regulations of the governmentas well as relevant people in Germany, helping to maintain trust as well as brand,and purity in the domestic market. c)Conceptual Framework. Conceptual Framework sets out the accounting principles for the preparing andpresenting the financial statements introduced by the IASB. It helps to generateaccounting information that meets the user needs and helps to make decisions.Conceptual framework helps to identify "good practice" while preparingaccounting reports. The main drawback is that it provides a simple framework forfinancial reporting for many users, such an approach may not meet therequirements of all users in another situation.3

In addition, Conceptual Framework helps harmonize different financial reportingmethods and enhances the consistency in financial reporting. Knowledge of theconceptual framework will also help the financial statements maker to applyaccounting standards more effectively. Knowledge of the conceptual frameworkwill assist the economic users of the financial statements in interpreting theperformance of entities. 2.Corporate Governance.Corporate governance, according to Monks & Minow (2012), is understood as thestructures, policies and laws to guide, operate and control the entire business. It showsthe relationship between the members of the Board of Directors, management,shareholders and stakeholders in that organization. Corporate governance needs tobalance the influences optimally for businesses to promote efficiency, openness,transparency, contribute to better investor protection and improve competitiveness forbusinesses.Through the above details, corporate governance has numerous benefits affecting thesurvival and growth of the business. First, it makes the company more open andaccountable to investors, so as to reduce disqualification and disparity amongshareholders.At the same time, it also provides effective tools to address the concernsof stakeholders such as social development and environmental sustainability (Ha2019). Good corporate governance is required to prevent mismanagement to allowcompanies to function more effectively, increase access to capital, reduce risks andprotect stakeholders. Lack of corporate governance can result in loss of revenue,corruption and a bad image, not only for industry, but for society as a whole, or4

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