The coming of the capital market to aid in large scale funding of business enterprises altered methods of financial reporting yet again. This separated the individual from the business entity, hence, limited liability. To attain this funding, the businesses had to provide detailed information; in the form of calculations and recommendations to the transactions of the business, losses, income, its worth and the targets. This is because there would emerge competitive search for funding. Transparency was a new issue too. This includes not only presenting the information truthfully but also accurately. However, in one way or the other, businesses had to look for suitable ways of making themselves favorites of public funding. Therefore, they generated subjective financial reporting ideas.
History of business was based on complete and perfect market conditions, where the accounting was supposed to be a true manifestation of corporate assets, owner’s evenhandedness and liability. Beaver suggested that for a market to be considered as improving: first, commodities and claim transactions should be occurring under the nil transaction costs; secondly, any enterprise or person earning extraordinary returns on investments should not have special treatment, opportunities and advantages; and lastly, price should not assume the behavior change of any individual or corporate. For these ideas to be withheld and implemented in the right manner, proper and transparent financial reporting should be undertaken. Beaver’s ideas indirectly suggest that claims and market prices should be investigated. Financial reporting provides the investigation platform.
Financial reporting was initially based on the corporation or individual. This made the methods diverse and others incompatible. The capital market was one, thus, calling for a common method or methods. Therefore, financial reporting has evolved with the orientation to come up with more compatible and common procedures for all the businesses under the common market. This has also contributed to peaceful undertakings in the capital markets at the individual country levels. Businesses are able to address and disclose their issues in a common manner, thus giving the officials of the capital market an easy time at assessing the financial report, especially in a way that they understand. However, these steps have not yet fully flourished. The world is yet to embrace the uniform methods. However, there are efforts to create a more uniform financial reporting language. The United States is on the verge to change from their GAAP- Generally Accepted Accounting Principles to International Financial Reporting Standards (IFRS). Over a hundred countries have adopted the new uniform methods since 2001. This has been done with the consideration of the existing market compatibility with the new methods. The IFRS framework constitutes definite standard and procedures used in the application of IFRS for the very first time (Deloitte, 2008). The method is also precise on liabilities, assets and inventories as compared to the GAAP method (PriceWaterhouseCoopers, 2007). In a nutshell, the method is a better make up of different methods in various countries’ capital markets.
Financial reporting has evolved with the change in institutions. However, at the advanced stage, it has been lagging. This is because, the advanced procedures have been used for longer time than intuitional procedures, which are adopted on a daily bases. One speculation is that the common procedures have made it slower to make a joint decision. This is because the capital market is more or less an equalization system, thus making decision making process a little bit more complicated. There are no subordinates. Everybody is exposed to equal opportunities and more or less equal advantages. In addition, certain bodies to govern the use of accounting models have come up, or created to counteract changes. The special committee [1994:94] concluded that users of the accounting model were in favor of getting more information, but not to change or replace the existing accounting model. It claims that the model provides one, users with a stable and dependable standard that is helpful in comprehending business, spotting drifts and calculating the business value through the projection of earnings and cash flows; and lastly providing reliable information as the method is based on the market transaction. The committee also insisted on standard setters to maintain the mixed model which would allow computation of assets and liabilities at cost, which were of realizable value (Whittington, R.O & Delaney, P. R., 2010).
Universal methods of financial reporting will be the aid to expansion of the global business. It is time for the procedure to embrace globalization, in order to develop the business world as a whole. Due to globalization, there is a surge to foreign investment. However, it becomes challenging to attain its goals in business, especially when the business language is not used. Global capital markets can only be in a peaceful flow if there is no need to translate financial reports in many business report languages (Deloitte, 2008). Therefore, the change of financial reporting depends on the institution. The more expansive it is, the more the need to advance. This can be deduced from the fact that businesses have grown and advanced gradually in centuries. Their sophistication has led to more elaborate models of financial reporting; from internal purposes models to all rounded models; from profits and losses oriented to general analysis programs; from vague to more precise methods. Globalization is a move towards preciseness.