INTHEBLACK September 2024 special edition - Flipbook - Page 40
THE QUEST
FOR QUALITY
F I N A N C I A L R E P O RT I NG
Studies have linked high-quality financial reporting with
a strong culture of ethics, but accounting for the grey
areas remains a challenge.
WORDS SUSAN MULDOWNEY
E
ffective corporate financial reporting is
complex, requiring a balance between
adhering to standards and making informed
ethical judgements.
By emphasising ethics, companies can ensure their
financial reports are not only compliant with standards
but also transparent, reliable and trustworthy.
Dr Peter Do, senior lecturer at the University of
Queensland Business School, led a 2022 ethics study
that confirmed a link between the culture of ethics, as
rated by company staff, and the quality of a company’s
public financial reporting.
“Ethics is a very pervasive subject,” Do says. “It
affects how people work in a company, the way they
think and the way they react to incentives.
“My impression is that, if they work in a very good
culture, people are happier. They are more relaxed
about how they work, they will be more productive,
and there should be higher work quality.
“Because of all that, I expect that companies with
a better corporate culture and a better ethics culture
should have better financial reporting quality. That
was the premise for my research,” Do explains.
UNDER THE MICROSCOPE
The quality of financial reports is a focus of corporate
watchdogs such as the Australian Securities and
Investments Commission (ASIC). ASIC conducts
40 INTHEBLACK September 2024 SPECIAL EDITION
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risk-based reviews of the financial reports of Australian
entities as part of its surveillance program.
Ram Subramanian CPA, interim head of policy and
advocacy at CPA Australia, says that ASIC examines
the preparation of financials in accordance with
the Corporations Act 2001 and with the Australian
Accounting Standards. The latter are based on
International Financial Reporting Standards (IFRS).
The financial reporting requirements in the Act state
that the final reports must be “true and fair”, he says.
“Preparing true and fair financial statements is a
well-established concept. It requires the preparer to
ensure that the financial statements are a true and fair
reflection of the financial performance and position of
the organisation,” Subramanian explains.
Accounting standards that follow the IFRS framework
are principles-based, meaning that accountants must
apply their own professional judgement and expertise
when preparing financial reports.
“There is a degree of estimation and assessment,
in terms of how certain numbers are measured and
presented in the financials.
“The fundamentals of financial reporting, as set out
in the conceptual framework for accounting standards,
include qualitative characteristics that you expect from
financial statements. These include attributes such
as faithful representation, reliability, relevance and
neutrality,” Subramanian says.
