DISTANCE LEARNING CENTRE

AHMADU BELLO UNIVERSITY,

ZARIA

COURSE CODE:

BUAD 804

INDIVIDUAL ASSIGNMENT:

SUBMITTED BY.

OMONILE, Mayowa

P23DLBA80051

Submitted to:

DR. ISMAILA YUSUF

April 2024
1.0 Introduction.

Financial reporting is the accounting process for communicating financial information. All companies
do some form of external or internal financial reporting — or both. External financial reports must
conform to accounting and reporting standards, and internal reports should do so, too, though the
two types of reports can look different because they serve different purposes:

 External reporting is used by company outsiders, like regulatory agencies, tax authorities,
investors, lenders, and trade partners, so it has more rigid requirements.

 Internal reporting is used by a company's senior management team to inform decision-

making, so it can be more tailored to their specific informational needs and the company's
business objectives.

Whether external or internal, the challenge for most companies is creating accurate, timely financial
reporting in an efficient way. Here's what's involved and how to make it better.

2.0 Components of Financial Reports

There are several components of financial reports. However, the most important components
include;

 Balance Sheet - The balance sheet reports the business’s financial position at a particular
point in time. It is also known as the Statement of Financial Position or Statement of Financial
Condition or Position Statement.

It shows the Assets owned by the business on one side and sources of funds used by the
business to hold such assets in the form of Capital contribution and liabilities incurred by the
business on the other side. In a nutshell, the Balance Sheet shows how the money has been
made available to the company’s business and how the company employs the money. The
balance sheet has Assets, Liabilities and Owners equity as major components.

 Income Statement - The Income Statement reports the financial performance of the business
over some time and comprises Revenue (which comprises all cash inflows from the
manufacturing of goods and rendering of services), Expenses (which comprise all cash
outflows incurred in the manufacturing of goods and rendering of services) and also
 comprise of all gains and losses which are not attributable in the ordinary course of business.
Excess of Revenues over Expenses results in Profit and vice versa, resulting in Loss for the
business during that period.
 Statement of Changes in Equity - This statement is one of the financial statement
components which reports the amount and sources of changes in Equity Shareholders’
Investment in the business over a while. It summarizes the changes in the capital and
reserves attributable to equity holders of the company over the accounting period.
Accordingly, all the increases and decreases during the year, when adjusted with the
Beginning balance, result in the ending balance.
The statement includes transactions with shareholders and reconciles each equity account’s
beginning and ending balance, including capital stock, additional paid-in capital, retained
earnings, and accumulated other comprehensive income. The statement shows how the
composition of equity (share capital, other reserves, and Retained Earnings) has changed
over the years.

 Cash flow Statement - This statement shows the changes in the business’s financial position
from the perspective of the movement of cash into and from the business. The primary
rationale behind preparing a cash flow statement is to supplement the Income Statement
and Statement of Financial Position. These statements don’t provide sufficient insight into
movements in cash balances.The cash flow statement bridges that gap and helps various
business stakeholders understand the sources of cash and utilization of cash. There are three
sections to the cash flow statement which are Cashflow from operating activities, Cash flow
from investing and cashflow from finance.

3.0 Benefits of Financial Reporting

The benefits of financial reporting includes;

 Make Better decisions - Analyzing and understanding financial statements is key when a
business needs to make an important decision. Financial reports allow management to
identify trends, potential roadblocks, and actively track their financial performance in real-
time. Staying on top of your financial statements will give you the foundation you need to
make quick and sound economic decisions when the time comes.
  Managing Debt - Financial statements provide business owners and management direct
insight into their company’s current assets and liabilities. Also, on how they should effectively
manage their company’s outstanding debt moving forward.
 Simplify Taxes - Financial reports are required by law for tax purposes and the Internal
Revenue Service (IRS) uses these reports to evaluate a company’s tax income. Accurate
financial reporting mitigates the risk for error and saves an immense amount of time. It
relieves the overall burden that comes along with filing your company’s taxes each year.
 Financial Transparency - External stakeholders must research a company’s financial position
before they decide to officially invest. Financial reporting is a great way to showcase a
company’s financial integrity and build trust with potential investors and creditors.

4.0 Financial Reporting Regulations

Financial report regulations refer to the rules and guidelines that govern how companies must
prepare and present their financial statements to ensure accuracy, transparency, and consistency.
These regulations are typically set by government agencies or industry bodies and are designed to
protect investors, creditors, and other stakeholders by providing them with reliable and relevant
information about a company's financial performance.

Some common financial report regulations include the Generally Accepted Accounting Principles
(GAAP) in the United States, the International Financial Reporting Standards (IFRS) used in many
countries around the world, and the Securities and Exchange Commission (SEC) regulations for
publicly traded companies.

5.0 Agreements in Support of Financial Reporting Regulations

There are several schools of thought in support of financial reporting regulations. These arguments
stated several benefits of financial reporting Regulations. They can be summarized as follows;

 Global consistency - One of the most significant advantages of adopting financial reporting
regulations is the establishment of a unified global accounting language. With Financial
Reporting Regulations, companies from different countries can communicate their financial
performance using the same set of standards. This consistency enhances the comparability
of financial statements across borders, making it easier for investors, analysts, and other
stakeholders to assess and analyze companies’ financial health on a global scale.
 Global consistency reduces the complexity of understanding financial information across
diverse jurisdictions, fostering a more transparent and efficient investment landscape.
 Access to International Market - Companies that adopt Financial Reporting Regulations gain
a competitive edge in accessing international capital markets. Many stock exchanges around
the world require listed companies to prepare their financial statements in accordance
with Financial Reporting Regulations. By complying with this requirement, companies can
attract a broader range of global investors and potentially achieve a higher valuation.
Access to international markets enables companies to raise capital more easily, expand their
investor base, and enhance their visibility on the global stage.
 Investor confidence - Transparent financial reporting is a cornerstone of investor confidence.
Financial Reporting Regulations emphasis on clear and accurate financial disclosures
enhances investor trust in the accuracy of reported financial information. This increased
confidence can lead to positive effects on stock prices and market capitalization.
Investor confidence drives higher market participation, lower cost of equity, and a positive
impact on a company’s overall valuation.
 Improved Decision Making – Financial Reporting Regulations contributes to better decision-
making by providing investors and analysts with standardized and comparable financial
information. With a consistent framework in place, stakeholders can make informed
investment choices irrespective of a company’s location. The reduction of information
asymmetry leads to more accurate assessments of companies’ financial performance and risk
profiles.
Improved decision-making facilitates the efficient allocation of resources, boosts investor
confidence, and enhances the overall functioning of capital markets.
 Cost Savings - Financial Reporting Regulations adoption can lead to substantial cost savings
for multinational corporations. The standardization of accounting practices eliminates the
need to prepare multiple sets of financial statements according to different local accounting
standards. This consolidation streamlines reporting processes, reduces the associated
compliance costs, and allows companies to allocate resources more efficiently.
6.0 Arguments Against Financial Reporting Regulations

There are several schools of thoughts against financial reporting regulations. These arguments
stated several disadavantages of financial reporting Regulations. They can be summarized as follows;
  Complexity - Financial Reporting Regulations is designed to be a global standard that applies
uniformly across jurisdictions. While this uniformity is an advantage in promoting
comparability, it can also be a drawback in certain cases. Some local business practices or
regulations might not be adequately addressed by Financial Reporting Regulations, leading
to potential gaps or inconsistencies. Companies operating in regions with specific accounting
requirements might find it challenging to reconcile these differences.
 Cost of Transition - Although adopting Financial Reporting Regulations can lead to long-term
cost savings, the initial transition can be financially burdensome. Companies need to invest in
technology upgrades, retraining of staff, and potentially hiring external consultants to ensure
a smooth transition. These costs can vary depending on the size and complexity of the
organization, adding a temporary financial strain that needs to be carefully managed.
 Continuous update and Changes - The Financial Reporting Regulations framework is not
static; it evolves over time to keep up with changes in business practices and emerging
financial instruments. Staying up to date with these changes can be demanding for
companies and professionals. Organizations need to continuously monitor and interpret
updates to ensure compliance and accurate reporting.

7.0 Conclusion

From the theories school of thought highlighted in sections 5 and 6 above, I will align with the
arguments in support of Financial Reporting Regulations as the benefits of financial reporting
regulations outweigh the disadvantages especially in developing countries like Nigeria in the area of
Access to International Markets which is very crucial to Nigeria’s Foreign Direct Investments, which
will ultimately boost the economy and government revenue through taxes. it will be important that
financial reporting in Nigeria should be regulated.
 References

Adetoso Jonathan Adegoke Oladejo, Kayode Samson (2013). The Relevance of International Financial
Reporting Standards in the Preparation and Presentation of Financial Statements in Nigeria

Awa, M and Abdullahi, S.A (2012). Adjustments in accounting policy for IFRS; Journal of Modern
Financial Management and Economics; 13(4)

Adejola, A.P. (2011): International Financial Reporting Standards (IFRS) Practical Implementation
Guide for Preparation and Presentation of Financial Statements. 1st edition, White Knight
Consulting Publications, Abuja, Nigeria.

Gambari, Y. (2010): Issues in the Implementation of IFRS; Accounting and Financial Reporting Issues;
Toronto; CICA

Lewis, J. and Pendril K. (1996) Accounting system in international trade; GAAP Compilations; Second
Series.

Ukpai, N. A. (2002): The Snag in International Accounting Transactions, Journal of Accounting; 3(6);
Pp 214- 220 NASB, (2010): Adoption of International Financial Reporting Standards, Report of the
Committee on Road map to the Adoption of IFRS, Abuja, Nigeria