Republic of the Philippines

UNIVERSITY OF RIZAL SYSTEM

Binangonan, Rizal
COLLEGE OF BUSINESS

COMPARISON BETWEEN REPORTING

AND RESULT QUALITY, AGGRESSIVE,
AND CONSERVATIVE REPORTING

1st Semester 2023-2024

BSBA FM 2 - 4

Submitted to:
Mrs. Gloria De Leon

Submitted by: GROUP 4

Doria, Krizialyn May B.
Era, Krizzia Majarocon
Figueroa, Arleen Rosario
Francisco, Gymeah R.
Labrada, Lesly Ann Cerna
 TABLE OF CONTENT

Introduction 1
Financial reporting quality 2
Financial Report Quality 3
Difference between Financial reporting and Quality of the reported results 4
Conservative Reporting Policy 5-6
Aggressive Reporting Policy 7-8
Evidence 9
Conclusion 10
References 11
 INTRODUCTION

Good day! I am Doria, Krizialyn May B. the leader of the group, along with my
assistant leader Era, Krizzia Majarocon and our members are Figueroa Arleen,
Francisco Gymeah and Labrada Lesly Ann. The topic that assigned to us is all about
Comparisons between Reporting and Result quality, Aggressive and Conservative
reporting. Our goal is to give you accurate information regarding the topic that you’ve
given us.
The objectives of our group is to help our classmates to understand the financial
reporting quality and the financial reports quality. We will discuss the difference between
financial reporting quality and financial reports quality. Our group also will may discuss
how the analysts useful in assessing company’s performance and prospects. And lastly
we will definitely introduce to you the aggressive and conservative reporting and their
advantages and disadvantages.
 FINANCIAL REPORTING QUALITY

FINANCIAL REPORTING QUALITY

Financial Reporting Quality refers to the degree of
usefulness of the information contained in the financial
reports. It refers to the characteristics of the financial
statements of the firm. There are certain important
characteristics of quality of financial information as provided
in the statements, they are:
a. Relevance.
b. Faithful Representation.
c. Material.
d. Complete.
e. Neutral.
EXPLANATION:
Users of financial statements who accurately evaluate the quality of financial
reporting can tell whether a business has the ability to avoid losses.
The information in high-quality reporting is important for decision-making, and
they will be aware of the correct financial situation in the business activities
during the reporting period and the condition of the company at the end of the
period.
There are certain important characteristics of quality of financial information
as provided in the statements, they are
A. Relevance - The information provided in the financial statements should be
useful for its users in actual derision- making.
B. Faithful Representation -The information so presented in the financial
statements should reflect the true and fair view of the statements of affairs
of a company.
C. Material - The books of accounts must reflect all the information that is
material to the decision-making by its users.
D. Complete - The information provided in the financial statements should be
complete in all respects.
E. Neutral - The information contained in the financial statements should be
free from any sort of bias.
 FINANCIAL REPORTS QUALITY

WHAT IS FINANCIAL REPORT QUALITY?

Financial Reports Quality also known as earnings quality.
Refers to earnings and cash generated of a company’s actual
economic activities and the resulting financial condition.

EXPLANATION:
What is Financial report quality
Financial report quality is all about the accuracy and reliability of a company’s
financial statements. These statements include the balance sheet, income statement,
and cash flow statement, which provide important information about a company’s
financial health.
Financial report quality refers to the degree to which financial statements and
reports accurately reflect a company’s financial performance, financial position, and
cash flows. High-quality financial reporting is essential for the integrity and transparency
of financial markets and for making informed decisions by various stakeholders,
including investors, creditors, analysts, and regulatory authorities
Financial reports lack quality, it can lead to misinformation, investor skepticism,
and potential legal and regulatory consequences. Therefore, maintaining and enhancing
financial report quality is of utmost importance in the world of finance and accounting.
.
DIFFERENCE BETWEEN FINANCIAL REPORTING AND QUALITY OF THE
REPORTED RESULTS

DIFFERENCE BETWEEN FINANCIAL REPORTING

AND QUALITY OF THE REPORTED RESULTS
The extent to which information included in the report is
useful shall be regarded as Financial Reporting Quality. It is
concerned with the characteristics of the company's accounts.
While the quality of the reported results is based on
earnings and cash generated by core economic activities,
resulting financial conditions that are sustainable in character
and result in an acceptable return on investment.

EXPLANATION:
Financial reporting quality is an overall accuracy, transparency and reliability of a
financial information that is presented in a company's financial performance. When we
say financial reporting quality, we are not talking about high earnings, what we are
talking about is how well is a financial information is presented.
While, quality of reported result focuses on a specific quality. Basically, it is the
result of your financial reporting. It is also known as Earnings Quality.
These two are interrelated with each other. Without the financial reporting quality,
assessing the quality of financial result is really difficult. When you have a high financial
reporting quality it implies that the financial statement that was provided is a true and
fair view of a company's performance. It contains information that is relevant, complete
and neutral.
 CONSERVATIVE REPORTING POLICY

CONSERVATIVE REPORTING POLICY

A "Conservative Reporting Policy" generally refers to a

company's approach to financial reporting and accounting
that prioritizes caution and prudence in recognizing revenue
and assets while being cautious about recognizing expenses
and liabilities.
Advantages
-Stability and Credibility
-Risk management
Disadvantages
-Understanding Profits
- Competitive Disadvantage

EXPLANATION:
Conservative Reporting Policy
It requires that revenues are reported in the same period as related expenses
were incurred. All information in a transaction must be realizable to be recorded. If a
transaction does not result in the exchange of cash or claims to an asset, no revenue
may be recognized.
The conservative reporting policy has benefits in terms of stability and risk
management, but it also has difficulties, such as reduced profits and the possibility of
losing interest from investors. It is important to have a balanced method of submitting
financial reports to ensure the correct representation of a company's financial health
A"Conservative Reporting Policy" generally refers to a company's approach to
financial reporting and accounting that prioritizes caution and prudence in recognizing
revenue and assets while being cautious about recognizing expenses and liabilities.
Here are some advantages and disadvantages associated with this approach:
Advantages
Stability and Credibility - Conservative reporting can provide a stronger image of the
company in the eyes of stakeholders and investors. This can give them confidence that
the company is not rushing or exaggerating to show positive numbers.
Risk Management - This will help in avoiding the possible risk that may be caused by an
overly optimistic audit or report submission. This can reduce the possibility of financial
scandals or serious losses.

Disadvantages
Understanding Profits - Conservative reporting may result in an understatement of the
company's actual earnings or value. This may not give proper recognition to the
achievements or advancement of the business.
Competitive Disadvantage - Excessive conservatism may cause a reduction in the
company's ability to obtain funding or resources for the project or expansion due to
perfect reserves.
 AGRESSIVE REPORTING POLICY

AGGRESSIVE REPORTING POLICY

Refers to accounting practices that are designed to
overstate a company’s financial performance. Aggressive
accounting is in contrast to conservative accounting, which is
more likely to understate performance and, thus, the firm's
value.

Aggressive Reporting Policy Technique

- Expense deferrals
- Asset inflation
- Revenue recognition

Advantages and Disadvantages

Advantages
- increases profitability
Disadvantage
- exposure to risk arising from low working capital position
- Puts too much pressure on the firm’s short-term borrowing capacity

EXPLANATION:
Aggressive Reporting Policy
Refers to accounting practices that are designed to overstate a company’s
financial performance. Aggressive accounting is in contrast to conservative
accounting, which is more likely to understate performance and, thus, the firm's value.
The goal behind aggressive accounting is to project a more favorable view of the
financial performance of a company than what's actually occurring. Most accountants
don't employ aggressive accounting techniques since it's considered unethical and, in
some cases, illegal.
 Aggressive Reporting Policy Techniques

 Expense deferrals. Recording an expenditure as an asset, rather than charging it

to expense as incurred.

 Asset inflation. There are a number of ways to increase the recorded value of an
asset, which correspondingly reduces the amount of reported expenses. For
example, the amount of overhead allocated to inventory can be manipulated,
thereby driving up the recorded amount of inventory and reducing the cost of goods
sold.

 Revenue recognition. Revenue may be recognized before the seller has fulfilled all
obligations associated with a sale transaction.

Advantages and Disadvantages

Advantage
 increases return on equity (profitability) - the goal of aggressive report is to
overstate its financial performance their profit is expected to increase.
Disadvantage
 exposure to risk arising from low working capital position – companies might end
up having trouble in paying suppliers and creditors.
 Puts too much pressure on the firm’s short-term borrowing capacity so that it may
have difficulty in satisfying unexpected needs for fund.
EVIDENCE
 CONCLUSION

In conclusion, we discuss about the financial reporting quality that refers to the
quality of information that is contained in financial reports including disclosure and also
the financial reports quality that refers to earnings and cash generated of a companys
actual economic activities and the resulting financial condition.
We talk about also the difference between financial reporting quality and quality
of reported results. The financial reporting quality is to the degree of usefulness of the
information contained in the financial reports. It refers to the characteristics of the
financial statements of the firm while the quality of reported results refers to the
earnings and the cash generated by the company’s core economic activities and
resulting financial conditions.
Lastly we discussed the difference between conservative reporting policy and
aggressive reporting policy. Aggressive financial reporting choices lead to an
overstatement of current financial performance at the expense of future performance
and sustainability. On the other hand, conservative choices, decrease current
performance and increase future performance.
 REFERENCE:

https://www.investopedia.com/terms/a/aggressiveaccounting.asp#:~:text=Aggressive
%20accounting%20refers%20to%20accounting,the%20recognition%20of%20a
%20loss
https://www.investopedia.com/terms/a/accountingconservatism.asp#:~:text=Accounting
%20conservatism%20is%20a%20principle,when%20they%20are%20fully
%20realized
https://procfa.com/courses/financial-reporting-and-analysis/topic/difference-between-fin
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https://www.studocu.com/ph/document/icct-colleges-foundation/financial-markets/l2-qua
lity-of-financial-reporting-m-2-4/23392110
https://www.coursesidekick.com/accounting/study-guides/boundlessaccounting/additio
nal-notes-on-disclosures
https://www.accountingtools.com/articles/what-is-aggressive-accounting.html