With the use of specific issues explain and justify how International Financial Reporting will change in the next 10 years?
Environmentalism and green movement
- Global warming is a serious threat to the world. People are getting more concerned by the pollution the many corporations had caused to the world. The public, including the investors are expecting the corporations to take care of the environment.
- One important issue is about the reduction of gas emission. Financial reporting will include such topic on how the company products and services had achieved successes in reduction of CO2 emission to the world.
- Sustainability accounting is important. People expect companies to report how the corporation can grow in a sustainable manner.
- Companies will report non-accounting variables, such as on the incorporation of green concepts or energy savings ideas in the business operations.
- Business ethics is increasingly important for corporations, as investors started to realize how risky it can be without ethical management team. This is not surprising, as unethical conducts giving rise to moral hazard had cause serious harm to the public.
- Corporate Social Responsibilities (CSR) is the hot topics today. The rise of Socially Responsible Investing is giving much pressure for corporations to act ethically and to conform to CSR principles. Besides, there are evidences that companies practising CSR also have better financial performances. Thus, financial reporting will increasingly disclose how a company had conducted its business in a socially responsible manner.
- Overall, the corporations will be required to report how the business is conducted in a way benefiting the community and the investors.
Recession and scandals
- Corporate scandals such as Enron, World Com and recently, the highly irresponsible and unethical investment banks, are creating huge harms to the society. The public have to bear the consequences due to fraudulent activities by certain greedy executives.
- Transparency will be the way to go. Off-balance sheets items as well as the various assumptions used in aggressive reporting will be questioned and attacked by investors.
- Reporting and disclosure should consider the demands and expectations from minority shareholders as well.
- Investor activism will demand stronger corporate governance and stringent risk management policies in the public listed companies, and such issues will affect the reporting standards and disclosure by listed companies.
- More accurate valuation on the assets will be demanded. Besides, more conservative revenue recognition policies are likely to take place in the future. Potential risks not reflected in the financial statements shall be disclosed as well.
- In an ever increasingly globalized world, there are real needs for harmonization of accounting and financial reporting standards and practices.
- Capital flows is bringing the world to become more integrated, and investing in foreign markets is the trend to go.
- Convergence of reporting standards can be expected. People around the world may slowly adopt IFRS for the increasingly global oriented investors.
Overall, accounting reporting will be more holistic in nature. Reporting and disclosure will touch on more perspectives on how a business is managed. Purely disclosure on information related to accounting figures is no longer sufficient.