Magazine article The CPA Journal

Financial Reporting in the 1990s and Beyond

Magazine article The CPA Journal

Financial Reporting in the 1990s and Beyond

Article excerpt

The Association for Investment Management and Research (AIMR), a professional organization of financial analysts and investment managers, has published a position paper on its view of the role of financial reporting in the 1990s. The document comments on the nature and frequency of financial reporting to the public and the necessity for auditor involvement to give the reporting the credibility the market requires.

In addressing financial reporting, the position paper states that for capital allocation "to proceed efficiently in our economy, information must be disseminated both promptly and publicly." This applies to financial statements as well as other financial information and nonfinancial data that can affect perceptions of the value of companies. The two conditions are considered by the paper to be complementary.

In meeting those conditions, the paper concludes that quarterly financial statements are the optimum frequency for disseminating information in financial statement form: less than three months is too short a period within which to make meaningful measurements of economic activity and a year or six months is too long to wait.

In discussing the accounting to be taken in preparing quarterly reports, the paper expresses the view of AIMR's Financial Accounting Policy Committee that a change be made from the "integral" approach of APBO 28 to the discrete method. The integral approach says that the main accounting period is one year and the quarterly periods are integral segments of the annual period. The result is the sometimes arbitrary allocation of costs across interim quarterly periods. Expenses such as advertising, research, maintenance, and income taxes are "unabashedly smoothed and often in ways that appear dubious." AIMR would prefer to let the analysts do the smoothing and have transactions reported in the period they occur. …

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