Understandability of Financial Reporting Requires Comprehensive Explanations and Not Mere References to Accounting Standards or Reports Attached to Financial Reporting

ABSTRACT: The understandability of Financial reporting requires that the profit and loss, the balance sheet, the notes, the cash flow statement and all the reports that, although not part of the Financial Reporting, constitute the company's communication to the outside world be intelligible and understandable by anyone reading a portion or all of the Financial reporting. And it should be noted that the person who has to understand everything set out in the financial reporting must, necessarily, have an even minimal basis of the concepts set out in the Financial reporting because it is impossible to draft a Financial report without using accounting terms or techniques that may be clear to a person who does not have the even minimal basis in accounting and financial reporting itself point. Understandability is achieved by applying national or international accounting standards, depending on the type of company in question, as well as civil law for companies obliged to do so, and by implementing the advice that the board of statutory auditors or auditors highlight in their documents and reports that they draw up during the audits that are periodically carried out in the company and that are drafted especially during the period of preparation of financial reporting. However, this article points out that merely referring to an accounting standard or a report by the board of auditors in which findings are highlighted and the consequent assertion that the accounting standard has been duly applied and all conclusions made by the auditors have been slavishly observed does not ensure the understandability of financial reporting. A particular analytical method must specify the accounting standard used and its involvement in financial reporting. In the presence of auditors' reports with findings, the findings made by the board of auditors must be explicit. It must be explained unambiguously in what manner and according to what accounting method the recommendations in the report in which the findings are highlighted in the accounting and corporate field were implemented.