The International Accounting Standards Board has created the International Financial Reporting Standards (IFRS) to help bring about consistency in the standards of financial reporting. This also helps ensure uniformity in the reports that are produced. The IFRS explains how to state financial transactions within a report, thus making for a more standard format, across reports. The guidelines established by the IFRS make it easier for financial reports to be studied globally, without creating confusion due to different rules in different countries.
Despite set standards being followed in creating financial reports, there are still errors that surface and that can compromise the quality of a financial report. These can be related to errors of omission, or involve matters such as long-term debt. Errors can also occur when dealing with information accompanying the financial report.
1. Information accompanying report: When providing information including financial documents, care must be taken to ensure that corresponding references are present in the financial report, as well. Examples of accompanying information can include listings containing work schedules, accounts and expenses.
2. Long-term debt disclosure: Inappropriate disclosure of long-term debt is a common error. While the rule is that any long-term debt or borrowings must be disclosed, errors may include incomplete disclosures or debt details totally omitted out of human error or through calculation mistakes. Thus, insufficient disclosures may be made, or disclosures are not made at all, resulting in financial reporting errors.
3. Related party disclosure: When there is an exchange of money involved, there is a related party disclosure that is applicable. However, at times, this may not be reported appropriately. At times the amount or terms followed by both parties may not be correctly disclosed. This can result in an error.
4. Errors of omission: At times, reporting of costs may be incomplete, for example, expenses may be accounted for but costs involved in raising funds and revenues could get omitted in reporting. This could apply to events as well, where overhead costs are not documented properly or timesheets are not maintained.
When preparing financial reports for your business, take note to avoid the common errors listed above.
Satish Patel, CPAPresident, Analytix Solutions
Satish Patel, Founder-CEO of Analytix Solutions, has more than two decades of experience as a CPA. He has also advised small and mid-sized businesses on diverse matters such as valuation, accounting, and finance. His experience extends to raising capital and arranging for finance from angel investors.
