Prospective Financial Information Essay

1524 words - 7 pages

Introduction
The aim of this report is to highlight whether it is practicable to report prospective financial information in company financial statements and as well as to provide several recommendations. The sections of this report consist of six sections which are mainly why having financial reporting is not enough, going beyond historical financial reporting, qualitative characteristics of prospective financial information, uncertainties underpinning prospective financial information, other recommendation and conclusion.

Why financial reporting is not enough
The “Framework for the Preparation and Presentation of Financial Statements’ the International Accounting Standards Board ...view middle of the document...

A forecast is prospective financial information based on expectation from the management at the time of preparation of both future events and management actions. A projection is prospective financial information based on hypothetical assumptions about future events and management actions which may or not likely to occur, like a ‘what-if’ scenario. [1] Hence, prospective financial information will improve the usefulness of financial statements for both internal and external users.

Qualitative Characteristics of PFI
In the ‘Prospective financial information: Guidance for UK directors’, it mentioned that for PFI to be useful, PFI has to be understandable, relevant, reliable and comparable to users.

Understandable
Published prospective financial information should be followed with the related disclosure of assumption that takes into account risks, uncertainties and sensitivities. Hence, sufficient published prospective financial information is prepared clearly for both sophisticated users and unsophisticated users to be able to evaluate the assumption for decision-making purpose and able to justify the uncertainties attached with the assumption. [1] In order to have understandable prospective financial information for users, it should be disclosed in a rational and simple manner.

Relevant
Users are capable to use published prospective financial information to make economic decision by assisting them evaluate current or future events or correct their historical evaluations. Relevance PFI needs to have projecting value and to be able to confirm in the future. [1]

Reliable
Management is held accountable for both the preparation and presentation of prospective financial information and the derived assumptions that are being identified and disclosed in the prospective financial information. Prospective financial information should be supported by analysis of the business environment and be presented in a true and fair view and according to a rational basis. In order to enhance the credibility of the prospective financial information that is use for both external and internal users, the management may ask auditors to do an audit check and report on the PFI. A more credibility prospective financial information will increase potential investors’ confidence in the reliability and quality of published prospective financial information as a sound foundation for their investment decision. [3]
Comparable
The statements should reflect items, transactions and events in a manner of consistency. Prospective financial information should be presented in assessment with past financial information. Users can then make use of the prospective financial information to make comparison of the actual financial performance of the company based on the use of consistence accounting policies, reporting periods and presentation with current and subsequent information. [1]
Having a more understandable, relevant, reliable and comparable published prospective...

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