Question

The AICPA Special Committee on Financial Reporting proposed the following constraints related to financial reporting. 1. Business reporting should exclude information outside of management’s expertise or for which management is not the best source, such as information about competitors. 2. Management should not be required to report information that would significantly harm the company’s competitive position. 3. Management should not be required to provide forecasted financial statements. Rather, management should provide information that helps users forecast for themselves the company’s financial future. 4. Other than for financial statements, management need report only the information it knows. That is, management should be under no obligation to gather information it does not have, or does not need, to manage the business. 5. Companies should present certain elements of business reporting only if users and management agree they should be reported—a concept of flexible reporting. 6. Companies should not have to report forward-looking information unless there are effective deterrents to unwarranted litigation that discourages companies from doing so. For each item, briefly discuss how the proposed constraint addresses concerns about the costs and benefits of financial reporting.

Answer 1

1. Business reports are now not required to mention anything which is out of scope of management as it leads to a lot of unnecessary research which involves cost of research analysis but the thing is even after putting a lot of efforts in these research of which management is not required and obviously outside research is required in which case , leads to no value addition . Thus, now it will lead to saving of cost from an activity from which there was no value addition is there.

2 . Sometimes there are certain information that may impair competitive position of the company which ultimately leads to cost in the form of losing any material contract due to concerns from client.

3 . Company if not forecast it's financial statements then it can deploy those resources in some meaning work. Company can simply provide relevant information which will save a lot of time.

4 . There are many information which are required to be given in addition to financial statements and some are those which are even not related to business. All these again leading to watage of resources for the company and since they are not related to business they also do dot give any additional benefit to business of the company.

6. Certain forward looking information requires estimation by experts like actuary, chartered Publix accountant etc. while the possibility of those events materialising use to be very remote, in such case avoiding such forward looking information and including only unwarranted litigation will help in saving of a lot of cost of the company which it would otherwise have paid as fees to those experts.