UNIT- 3

DIMENSIONS OF CORPORATE REPORTING

MEANING OF CORPORATE REPORTING

Corporate reporting is a broader term than financial reporting, although the two
are often used interchangeably. Corporate reporting covers reports other than
financial statements, in particular audit reports, but also assurance of
internal audit and environmental reports.
However, we use the term "corporate reporting" to refer to the presentation and
disclosure aspects – as distinct from accounting/measurement – of the following areas
of reporting:
 Integrated reporting
 Financial reporting
 Corporate governance
 Executive remuneration
 Corporate responsibility
 Narrative reporting
In the context of professional accountancy examinations, a Corporate Reporting
paper is generally higher level than a Financial Reporting paper. General principles
relating to corporate reporting are set out in the IASB Conceptual Framework for
Financial Reporting, together with regulatory matters and selected International
Financial Reporting Standards (IFRS) that set out principles and frameworks.

OBJECTIVES OF FINANCIAL REPORTING

1. To provide information to the investors, creditors and other users in making

rational investment, credit and other similar decision.

2.  To assess the amount, timing and uncertainty of prospective net cash inflows to
the related enterprise.

3. To provide information about an enterprise financial performance during a

period.
 4. To provide information about an enterprise performance provided by measuring
of its earnings and its components.

5. To provide information about how an enterprise obtains and spends cash, about
its borrowings and repayment of borrowings and also about other factors that
may affect an enterprise liquidity or solvency.

6. To provide information that is useful to managers and directors in making

decisions in the interest of owners. 

SCOPE OF FINANCIAL REPORTING

 Financial reporting covers more than just financial/company accounting
(preparation of financial statements).
 Although this is an important part of it, Financial reporting also includes
disclosures that may or may not be contained in the financial statements.
 Examples of disclosures: Environmental disclosures, notes to the accounts
regarding the valuation of assets, press releases.
 Disclosures can be financial and non-financial.

INVESTMENT DECISION MAKING

Investment Decision is the allocation of capital among different investment

opportunities to earn a maximum return. Firms can use it to select the most appropriate
type of assets for deploying their funds. Investors or top-level managers make these
decisions after properly analyzing each investment opportunity.

Every organization’s profitability is affected by the decisions it makes regarding

its investments. Therefore, before committing any capital to available investment
avenues, a risk-return analysis must be conducted. Investing decisions can be divided
into two categories: long and short term.

Capital budgeting consists of long-term investment decisions regarding the

investment of funds into long-term assets. Conversely, short-term decisions pertain to
investing in short-term assets, also referred to as working capital management.

Investing decisions refer to the decision based on the number of

funds to be deployed in investment opportunities as decided by the
investors or the top management. Thus, an investment decision is simply
the process of selecting the assets into which the firm will invest the funds.
Investment Decision Examples
There are various ways for investors to invest and grow their wealth in financial
markets. In addition, investing in multiple types of investments can help an investor
achieve their financial goals. Among the most common types of investments are:

 Stock: A company sells the stock and receives cash as a result. The act of selling
stock sells the company’s ownership to that extent. Reserves are reclassified into
common stock and preferred stock based on the rights awarded to the acquiring
investors. Investors should diversify their portfolios by investing in different
stores based on their risk appetite when deciding how to invest assets. If they are
unable to do so, they should consult with financial advisors.

 Bonds: Companies issue Fixed-income securities in exchange for cash, and the
company issuing the securities owes its holders money. A later agreed-upon date
(maturity) must be observed to pay interest and repay the principal amount.

 Options: A contract that involves the sale or purchase of an asset at a future date
is known as an options contract between two parties. This agreement gives the
buyer the option the right to buy or sell.

 Real Estate: Land, buildings, and other real estate are examples of real estate.
Therefore, investing in real estate would lead to wealth creation by allowing the
real estate assets to appreciate. Real estate comes in various forms like a Real
estate for residential use, Properties for sale in the commercial sector, Investment
in industrial property, Property.

 Crypto-currencies: The term ‘crypto currency’ refers to a digital currency that

uses cryptographic technology to secure financial transactions and is used to
verify and regulate the transfer of funds, the generation of currency units, etc.

 Commodities: Investing in commodities includes precious metals like gold,

silver, platinum; energy commodities like crude oil and gas; or natural resources
like agriculture, wood, and timber.
Types of Investment Decisions

Inventory Investment: An adequate amount of raw materials is procured by the firm

based on the decisions it makes. To make sure that the business runs smoothly, it is
essential to have the right supplies. Investment expenses encompass all expenses
incurred by a company to maintain its stock. 

Strategic Investment Expenditure: The purpose of strategic investment

expenditure decisions is to increase a firm’s market power. Therefore, investing in these
expenditures yields long-term benefits and does not yield immediate returns.

Replacement Investment: The decision is made to replace old or obsolete assets

with new ones because modernization is needed. The firm must decide all fixed assets to
be returned and which new assets must be purchased after they are replaced.

Modernization Investment Expenditure: In the course of the production process,

companies incur these expenditures to upgrade their tech. The latest and best
technology is adopted instead of the old one to increase efficiency and decrease overall
costs. Capital deepening is also known as this process. 

Expansion Investment: Investment decisions for expansion are made due to

increased demand for a firm’s size and production capacity. Firms often use fixed assets
for producing more products, which makes them more efficient. Capital widening is also
defined as investment undertaken to increase a company’s size.

Expansion Investment on New Business: Organizations make such decisions

when starting a new business or diversifying their risks by creating new product lines.
An essential part of diversifying the firm’s business requires it to acquire a new set of
machinery.

The Investment Decision-Making Process

1. Take a financial inventory: One thing you need to do is take a financial

inventory. That means sorting out the money and other assets that are all
yours from those that someone else has a claim on -- in other words, finding out
what you own and what you owe.

2. Prepare an investment policy statement: An investment policy statement

(IPS) is a document drafted between a portfolio manager and a client that
outlines general rules for the manager. This statement provides the general
investment goals and objectives of a client and describes the strategies that the
 manager should employ to meet these objectives. Specific information on
matters such as asset allocation, risk tolerance, and liquidity requirements are
included in an investment policy statement.
3. Develop an appropriate investment strategy: Having an investment
strategy is like having an instruction booklet guiding you through the investment
process. It will help you discard many potential investments that may perform
poorly overtime or that are not right for the investment goals you are looking to
achieve. When creating an investment strategy, it is important to quantitatively
figure out what you are seeking to accomplish.
4. Implement strategy: Implementation is the process of putting an investment
strategy plan into action. Implementation is key to investment outcomes whether
transitioning an existing portfolio from one strategy to another, or whether
investing fresh capital.
5. Evaluate performance: The best way to evaluate a strategy is its performance
over a complete market cycle. Additionally, investment team continuity is
essential.
MANAGEMENT ACCOUNTABILITY

Managerial accountability means both a clear focus on performance and

compliance with rules. It requires holding managers accountable for results by assigning
them responsibility, delegating authority for decision making, and giving them the
autonomy and resources necessary to achieve the expected results.

Managerial accountability refers to the answerability of managers for the

work and results of their organization. It implies responsibility for all aspects of
management, from planning to reporting and from delegation to control. Managerial
accountability means both conformity to rules and procedures (compliance) and a clear
focus on results (performance).