Reporting Financial Performance
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SQF4 Reporting Financial Performance Group D Xiaomeng Guo The FRS 3 was issued in October 1992. "The objective of FRS 3 is to require entities falling within its scope to highlight a range of important components of financial performance to aid users in understanding the performance achieved by a reporting entity in a period and to assist them in forming a basis for their assessment of future results and cash flows"(Alexander,p615). This objective is met by requiring entities to use a layered format for the profit and loss account that will highlight important components of the financial performance such as results of continuing operations, result of discontinued operations, profit or loss on the sale or termination of an operation or restructuring and profit or loss on the disposable of fixed assets and extraordinary items. The format of disclosures for the performance statement is changed later. The ASB issued FRED 22 'Reporting Financial Performance' as a proposed revision to FRS 3, in December 2000.
Recycling of gain and losses between different sections of the performance statement is not permitted. The FRED would not permit the inclusion of dividends for the period in the statement of financial performance because they represent transactions with owners as owners rather than expenses of the entity. Dividends for the period should be shown as memorandum items at the foot of the performance statement, both in total and per share. Reconciliation of ownership interest is required as a primary statement. A primary statement should be presented reconciling the opening and closing totals of ownership interests of the period. "Certain reconciling items, namely the results of the period as reported in the performance statement, dividends for the period (broken down into equity and non-equity dividends as required by FRS4 'capital instruments'), and the cumulative effect of prior period adjustment, should be disclosed separately in the reconciliation" (Accounting Standards,p1672). The changes in ownership interest which is the additional information not from the performance statement are important in understanding the change in the entity's financial position over the period.
The main thing to do now is to replace the income statement with a layered matrix structure. Information will be represented vertically layered under various subheadings (such as business which include operating, other business and financial, financing; tax discounting activities and cash flow hedges profit. The horizontal headings come out with totals; profit before remeasurement and remeasurement which could represent the effect of remeasurment. "The objective of financial is to provide information about reporting entities financial performance and financial position that is useful to a wide range of users for assessing stewardship of the entity's management and making decisions." To evaluate this kind of statement with matrix structure, we need to look at its relevance,reliability,comparability and understandability. The investors are likely to be interested in the performance statement which shows the expenses and income about the future, so the proposal is relevant for decision making. The different accounting policy may affect the final result showed on the performance statement ant it may not be comparable with other entity. For people knows very little about accounting, this statement may be difficult for them to understand.
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