The purpose of this essay is to illustrate the complexity meanings of financial reporting reflect the reality and it can be the creator of social reality. Financial reporting should have an objective “truth” and “fair” view and prepare a faithful presentation for shareholders to deal with the investment. Accounting theory need to continuous change its standards or models in order to meet the future needs. This easy also discuss this statement which relate to the sustainability issues in the Australian business activities. As an innovation, sustainability reporting will combine with the traditional financial reporting to serve the stakeholders. But there is not a common standard to design the sustainability reporting, it cannot reflect the actual performance.
Financial reporting plays a key role in current world, especially in business activities. Most firms prepare their performance through their financial statements. With the development of human being, there is a big innovation happened in financial reporting. Human being start to adopt sustainability in the reporting in order to satisfy the future needs. Sustainability is an innovation theory which meets the needs of present human being without bring negative effect to the future generation (WCED 1987, P.40). After several years research work, sustainability theory not only used in environmental improvement, but also can influence on the economy, society and culture (Bob, Bill &Geoff 2002, p.189). In recent years, the theory of sustainability becomes the global issue which affects the process of accounting and practice. Especially in ethical and social fields, sustainability theory leads human being to critical thinking about the nature of “truth” and “reality” in financial statements.
Once upon a time, sustainability has most impact on the environment issues. Now, Australian firms start to adopt the sustainability theory in the business activities. In Australia, the innovative sustainability reporting is prepared by many famous Australian companies. The traditional financial reporting is the process of preparing and presenting financial information for the decision making (Picker et al. 2009, p.700). And the purpose of the new innovative sustainability reporting is tried to find out the ‘reality’ for the sustainability in the Australian business. Is the sustainability reporting reflecting the reality? Or it is the creator of reality?
This essay is organized as follow:
Financial reporting: reflection of reality
Financial reporting is the financial statement which consists of statement of financial position, comprehensive income, changes in equity and cash flows. Every firm provides financial information for decision making. The report (AASB 2008) noted that financial reporting is base on the actual result of firm’s performance and provide a true and fair view of objective data for financial analysis. The ‘true’ and ‘fair’ view means that the financial reporting provides financial information which is useful and accurate. In the framework of AASB (2009), it indicated that a useful and accurate financial statement must satisfy several qualitative characteristics: relevance, understandability, comparability, and reliability. A financial statement should easy to understand and compare, the users can review the past events by read the financial reporting easily and clearly. The data in the reporting should reflect the social reality without misleading information and the report designer should have responsibility for the result by the fake information in the report. Only when the financial reporting meets the four qualitative characteristics, the financial reporting is reflect the reality. The financial reporting provide a true and fair view, it is an objective financial statements without individual’s opinion (Hines 1988, p.252).
The reason why financial reporting needs to be a faithful presentation is, if the report is subjective and...