Introduction To A History Of Innovation In Financial Reporting – FAQ | IFRS

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
  4. Taking a bath accounting.

The two starting model for financial reporting were: (1) Proprietary model and (2) closed (entity) model

In the proprietary model there is no separation between owner and manager. The aim of the company is to enlarge the owner’ capital, only the owner and the tax authorities are direct involved stakeholders. In fact, most of the times these companies only have an annual tax report and no other kind of statements1. Introduction to a history of innovation in financial reporti

In the closed model there is a separation between the owner and the manager. In contrast with the above stated model two parties, except for the tax authorities are interested in information about the company. The use of the annual report is to show the investors how their money was invested and how the company earned its profits. The above stated separation could lead to managers that exploit the gap that exists between the two groups; to their advantage, but to the disadvantage of the shareholders. Introduction to a history of innovation in financial reporti

The solution prescribed has generally been the regular provision of periodic financial information for shareholders. To point one specific year in history that was ‘the start’ of the closed model is a hard and also subjective thing to do. The start of the closed model was in 1950. At the end of the 1940’s, companies were more aware of the importance of the securities market as a source of capital and of the need to provide shareholders with more than the barest essential form one side of the balance sheet. The annual report became a tool for investors to call management to account. Introduction to a history of innovation in financial reporti

Introduction to a history of innovation in financial reporti

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