Financial statements should fully reflect information about the financial position of the enterprise and its economic activities. The pitfalls in the preparation of financial statements are the problems of data accuracy and reliability, as well as the issue of reporting compliance with international standards.
Financial reporting problems
The main problem in the preparation of financial statements is the potential for errors. Financial reporting error is defined as the provision of inaccurate information. The following types of errors are distinguished: mathematical, accounting, misinterpretation of the results of the enterprise's activities, inattentional errors, errors for the purpose of fraud. The most problematic and difficult to detect are errors due to misinterpretation of economic activities.
In financial practice, all errors are classified into the following groups:
- intentional and unintentional mistakes;
- significant and insignificant errors;
- errors of the current period and errors of previous periods.
Methods for correcting errors in financial statements are determined, there are two of them: the correction method - consists in crossing out incorrect data and indicating the correct information next to it, provides for the signature of the correcting person indicating the date of the correction;
the second method "reversal" - is used in cases of entering erroneous information into the state database and is the preparation of an accounting statement, which indicates the reasons for the error and a description of the error itself with reference to the financial statements in which this error was made.
When correcting errors in financial statements, retrospective and prospective methods of data recalculation are distinguished. Retrospective means correcting an error in the next reporting after finding an indication of incorrect data. A promising way is to analyze the impact of the error on the results of the reflection of future periods and the corresponding correction in the final reports.
Compliance of financial statements with international standards
In connection with the development of international relations and the economic efficiency of interaction between enterprises from different countries, an urgent problem is to bring the reporting of an economic entity in accordance with international standards. For this purpose, accounting practice has developed two methods for adjusting reporting: the transformation method and the parallel accounting method.
The reporting transformation method involves the following stages:
- accounting analysis;
- regrouping of items of the financial balance and other data in accordance with the norms of the international system of financial relations;
- drawing up a list of adjustments in the reporting;
- preparation of amended, transformed financial statements that comply with the norms of the international financial accounting systems.
The parallel accounting method implies the simultaneous use of domestic and international reporting standards and data reflection in two accounting systems. Parallel accounting is considered more time consuming, but also more accurate than the transformation method.
