FINANCIAL REPORTING: ADEQUACY FOR FIRM VALUATION AND MANAGEMENT ASSESSMENT
This research considers the contention that current approaches to financial reporting are adequate for the control of a firm's financial resources, but are largely unsatisfactory in facilitating the valuation of firm worth or the assessment of managerial performance. With respect to the valuation of the worth of a firm, one contention is that financial reports should provide prospective information to facilitate the assessment of the firm's future. Current financial reports based on the principles of financial accounting largely fail in this context. Another contention is that the use of traditional financial reports in the contemporary period fails almost completely as a basis for the assessment of managerial performance, and that this deficit will be exacerbated as the contemporary business environment continues to evolve. The momentum for change in the approaches to financial reporting is strengthening. The widespread conclusion is that traditional financial statements serve the needs of neither the present nor the future.
The character of the changes proposed for financial reports is reviewed in the following discussion. Then, specific changes recommended for financial reporting are reviewed.
The Character of the Changes Proposed for
Financial statements issued by an enterprise must include a balance sheet, an income statement, a statement of changes in financial position, and a statement of stockholders' equity. The statement of stockholders' equity must disclose, for each issuance of equity stock, the date and number of shares of stock, warrant rights, or other securities issued for cash or other consideration, the dollar amounts assigned to any non cash consideration received, the number of equity shares outstanding, and any retained earnings.
Financial disclosure is required because financial state...