Assessing Quality of Financial Reporting

1
Assessing Quality of Financial Reporting

• Written by
• Gregory Jonas and Jeannot Blanchet

Presented by Lee Siow and Dawn Wichmann
2
Objectives of the Article

• To explain the differences between the quality of
  financial statements and the quality of financial
  reporting
• To improve and further define the characteristics
  of quality financial reporting
• To present their proposed framework

3
Events Leading to Change

• Blue Ribbon Committee - Improving the
  Effectiveness of Corporate Audit Committees
  (Recommendation No. 8)
• Auditing Standards Board - (SAS No. 61)
• AICPA Quality of Accounting Principles Guidance
  for Discussions with Audit Committees (Practice
  Alert No. 2000-02)

4
Quality of Financial Statements vs. Quality of
Financial Reporting

• Quality of financial reporting is more than
  financial statements.
• Ex press releases, analysts briefings,
  presentations, websites, etc.
• Financial reporting is a process.

5
Categories of Past Quality Approaches

• User Needs
• FASBs Conceptual Framework
• Earnings Persistence Model
• Jenkins Committee Recommendations
• Shareholder/Investor Protection
• Kirk Committee Recommendations
• SEC
• Panels Recommendation No. 8
• SAS No. 61

6
User Needs Approaches vs. Shareholder/Investor
Protection Approaches

• User Needs Approaches
• concerned with providing financial information
  that is relevant to users in making capital
  allocation/valuation decisions
• Shareholder/Investor Protection Approaches
• concerned with ensuring users are provided with
  as much information as possible, in as
  transparent a fashion as possible

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User Needs Approaches

• FASB Model
• Relevance and reliability
• Jenkins Committee Approach
• Relevant information based on the individual
  users needs
• Earnings Persistence Approach
• Relevant information based on the investors
  perspective

8
Shareholder/Investor Protection Approaches
9
FASBs Qualitative Characteristics of Financial
Information
10
Proposed Framework
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Conclusion

• Quality financial reporting
• goes beyond the quality of financial statements
• is defined under two different perspectives
• has led to a more complete framework