History of Financial Reporting | Annualreporting.info

Differences in international financial reporting

In the current stage of social development, all countries can be divided into the two following groups:

  • Countries with the legislation of general judicial development;
  • Countries with a well-structured legislative framework.

In the first group of countries laws are a set of merciless rules designed according to the principle ‘You are obliged to…!’, i.e., allowed only if expressly permitted in the law.

See also: https://en.wikipedia.org/wiki/Common_law

The responsibility of both physical and legal entities is to literally obey the rules laid down in the legislation which are provided for each even the smallest of the cases.

Accounting standards which are approved at the government level are introduced by the force of law. Any accounting procedures are laid down in … Read more

Taking a bath accounting – big bath strategies

This is a note on the innovative history of Philips’ financial reporting, see the ‘Introduction to a history of innovation in financial reporting‘.

From 1912 onwards, 11 periods are identified in which different CEO’s were in charge. A distinction has to be made between non-routine (NR) and routine CEO turnover. In literature considerate evidence has been found that when approaching CEO turnover, 1) income reducing accruals, 2) research and development and 3) depreciation (all directly impact income) are managed to affect the company result.

Using the current accruals instead of total accruals may increase the power of the test because firms are more likely to use discretionary current accruals to achieve year-specific earnings objectives. The big bath (cover … Read more

Prudent reporting in high performance periods

This is a note on the innovative history of Philips’ financial reporting, see the ‘Introduction to a history of innovation in financial reporting‘.

As a starting point a short history of changes in the Philips’ accounting policies is provided: Prudent reporting in high performance periods

Before 1919

conservative accounting based on historical cost, write-off’s to one guilder, silent reserves, depreciation was treated as a distribution of income

1920 – 1939

a reserve for expansion was created containing money generated by additional paid-in capital (1920), in 1924 patents are capitalized

1930-1939

consolidated balance sheet (since 1931), revaluation reserve created, depreciation of capital expenditures charged to reserves

1940-1949

depreciation based on current fixed costs, business cycle equalization reserve introduced for

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Financial reporting models

This is a note on the innovative history of Philips’ financial reporting, see the ‘Introduction to a history of innovation in financial reporting‘.

Literature suggests that voluntary disclosure of financial reporting is associated with participatory, democratic ownership structures. Conversely, secretive attitudes are fostered by the centralization of equity ownership around dominating interest groups and by institutionalized systems of collective bargaining.

Over the years the purpose of annual reports changed by its changing group of users. Three ownership models that explain the purpose of annual reports are firstly described. After that the agency theory and creative accounting by CEO succession are worked out as explaining tools.

(1) Proprietary model and (2) closed (entity) model

In the proprietary model there … Read more

Disclosure innovations in financial reporting

This is a note on the innovative history of Philips’ financial reporting, see the ‘Introduction to a history of innovation in financial reporting‘.

In the Netherlands formal legislation concerning financial reporting was introduced rather late in the early 1970s. The lack of formal legislation was a stimulants to applying innovative financial reporting disclosures, bluntly said ‘anything was possible’ there were no legal minimum levels.

This part is based on a research overview by Camfferman (1996) in his paper ‘Voluntary annual report disclosure by listed Dutch companies, 1945 – 1983’. Camfferman’s work identifies 9 disclosure items. The nine disclosure innovations are discussed in here.

(1) Disclosure of Sales Disclosure innovations in financial reporting

The movement towards disclosure of sales, … Read more

Introduction to a history of innovation in financial reporting

Philips Electronics is a Dutch listed company.

Inspired by the fast-growing electricity industry and the promising results of son Gerard’s own experiments to make reliable carbon filaments, in 1891 Frederik Philips financed the purchase of a modest factory in Eindhoven. Their plan? To bring cost-effective, reliable electric incandescent light bulbs to everyone who needed them.

Over the years since then, Philips has continued to improve people’s lives with a steady flow of ground-breaking innovations. See full heritage through this link:

https://www.philips.com/a-w/about/company/our-heritage.html

But innovation was not limited to their core business. Philips also has a history in innovation in financial reporting. The following items are discussed:

  1. Disclosure innovations,
  2. Financial reporting models,
  3. Prudent reporting in high performance periods (1950-1959), and
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