Financial Statements Free Essays

The following paper will talk about the income statement and what the income statement tells about the company including why this statement is important and what business decisions can be made using the income statement. Also, the paper will talk about the balance sheet and what the balance sheet tells about the company. Also, the reason the balance sheet is important and what business decisions can be will be covered. We will write a custom essay sample on Financial Statements or any similar topic only for you Order Now Lastly, it will talk about the statement of cash flows and what it tells about the company. It will talk about what kind of business decisions can be made using the statement of cash flows. In the conclusion the paper will provide the information how data provided in the statements can assist in making business decisions and what information is not provided that can assist managerial decision making. As it was indicated by FASB, the main purpose of financial reporting is to provide financial information about company performance. The income statement is one of the most important financial statements because of its predictive value and qualitative characteristics. The income statement is also known as profit and loss statement that records company revenues and expenses during a certain period of time. The reason the income statement has very high importance is because it can determine the company’s operating performance during a specific period of time. â€Å"Specific items that are causing unexpected expenditures can be pinpointed, such as phone, fax, mail, or supply expenses. Income statements can also track dramatic increases in product returns or cost of goods sold as a percentage of sales† (Business Town, 2010). Also because it provides so much important information about the business, the income statement is required by lenders, investors, and vendors. There are many users that can make their business decisions based on an income statement of the organization. The bank can use income statement information to determine if a company produces enough revenue to be able to pay back a loan. An owner of the company can determine if the company makes enough revenue to hire new employees or to look at the sales performance for the month. The balance sheet should disclose a company’s wealth at a point in time. These measurement techniques of balance sheet can be summarized as past oriented—historical; current oriented—replacement amounts; and future oriented—expected amounts† (Schroeder, Clark, Cathey, 2005). A balance sheet can be defined as a summary of financial balances of the organization. There are three main elements of balance sheet: assets, liabilities, and equity. Usually the following classifications are presented in the typical balance sheet: Assets Current assets †¢Investments †¢Property, plant, and equipment †¢Intangible assets †¢Other assets Liabilities †¢Current liabilities †¢Long-term liabilities †¢Other liabilities Stockholders’ equity †¢Capital stock †¢Additional paid-in capital †¢Retained earnings (Schroeder, Clark, Cathey, 2005) As well as income statements, the balance sheet will help lenders, creditors, and investors to determine profitability of the company and help to decide whether to invest in the company or not. The balance sheet statement will help to detail the history of the business, including the profit and loss, the seasonality of earnings, and other factors that are unique to the business† (Business Town, 2010). The statement of the cash flow is also very important financial statement. The purpose of this statement is to record cash generated during the specific time period. The statement of cash flow reports cash that was generated and used in following categories: operating activities, investing activities, and financial activities. The FASB has emphasized the importance of cash flow information in its deliberations. SFAC No 1 states that effective financial reporting must enable investors, creditors, and other users to assess cash flow prospects and evaluate liquidity, solvency, and flow of funds† (Schroeder, Clark, Cathey, 2005). The statement of the cash flows tells the company’s liquidity, solvency, and its financial flexibility. As well as other financial statements discussed in this paper, the statement of the cash flow helps investors to make right decision based on provided information. The statement of the cash flow also helps predict and evaluate future returns or potential risks. â€Å"In 1987, the FASB issued SFAS No. 95, â€Å"Statement of Cash Flows. † This statement established standards for cash flow reporting , as a result, all business enterprises are now required to present a statement of cash flows in place of the statement of changes in financial positions as part of the full set of financial statements† (Schroeder, Clark, Cathey, 2005). The main purpose of the statement of cash flow is to provide information about cash receipts and cash payments during selected period of time. This information is necessary for investors and creditors, so they can see a potential picture of prospective cash receipts. In conclusion, financial statements are very important for any business, starting from small startup companies to global corporations. Financial statements can help determine an organization’s problem as well as identify a corrective action. Understanding of financial statements is also very important because it can tell accurate information about what happened in the past. By using financial statements, it is possible to analyze and evaluate financial activity from the past and forecast the most likely future activity. Besides financial statements there is other non financial information that can assist in making business decisions and assist in managerial decision making. It is important to compare both, financial and nonfinancial measures to see a better picture of the organization as a whole. It is important for managers to include nonfinancial performance standards in their analysis of operations because not every aspect of corporate activity can be expressed in terms of money. Nonfinancial performance measures relate to manufacturing and production, sales and marketing, people, research and development, and the environment. How to cite Financial Statements, Essay examples Financial Statements Free Essays Financial Statements Accounting is a function by which users can understand the internal financial workings of a company. Use of public accounting dates as far back as the late nineteenth century (Hendrickson, 2007) and continues today under the set guidelines that accounting professionals refer to as generally accepted accounting principles. These principles are set in the United States by the Financial Accounting Standards Board and the Securities and Exchange Commission (Weygandt, p. We will write a custom essay sample on Financial Statements or any similar topic only for you Order Now 9, 2008). The International Financial Standards Board collaborates on ways to standardize these principles globally. Through accounting, an entity methodically identifies financial transactions, chronologically records and analyzes the transactions, and communicates this information to interested users (Weygandt, p. 4, 2008). In this paper, the subject is to identify the four basic financial statements, how they interrelate, and how both internal and external users make use of these statements. Companies prepare the four basic financial statements in the following sequence; income statement, retained earnings statement, balance sheet, and statement of cash flows (Weygandt, p. 1, 2008). The reason for the order is each statement supplies an important piece of financial information the next statement needs. Further examination of each of the financial statements clarifies the flow of information from statement to statement. Preparation of the income statement comes first. The income statement examines only the revenues and expenses of the entity over a certain period. If the revenues exceed the expen ses within the period, the result is a net income (Weygandt, p. 21, 2008). If expenses exceed the revenues, a net loss results for the period. The next financial statement, the retained earnings statement, needs the net loss or net income figure. The second basic financial statement is the retained earnings statement. This statement reflects why there is an increase or decrease in the retained earnings of an entity over a period (Weygandt, p. 21, 2008). The period is the same as the income statement. The retained earnings statement carries over the ending balance of the prior period retained earnings statement. If it is the first statement of this kind for the entity, it begins with a retained earnings amount of zero. At this point, the net income or net loss carries from the income statement. A net income balance increases retained earnings; a net loss decreases retained earnings. The last item a retained earnings statement takes into consideration is dividends. If the entity decides to pay out a dividend, the retained earnings statement shows the dividend, which decreases the ending balance of retained earnings. The balance sheet comes third in the sequence of financial statements. The balance sheet reports the assets, liabilities, and stockholder’s equity of an entity on a specific date (Weygandt, p. 23, 2008). This date correlates with the ending date of the periods for the prior statements. The total of assets must equal the total of liabilities and stockholder’s equity on the balance sheet. Stockholder’s equity consists of the total of common stock, revenue, retained earnings, dividends, and expenses. The retained earnings balance above carries to the balance sheet. The last of the four basic financial statements is the statement of cash flows. This statement summarizes the inflow and outflow of cash over the same period as the income statement and retained earnings statement. The cash flow statement shows the cash effects on company operations, investing transactions, financing transactions, net increase or decrease of cash, and the ending cash balance (Weygandt, p. 24, 2008). The cash balance (under assets) from the balance sheet flows into the statement of cash flows. Internal and external users both make use of the four basic financial statements. Managers, employees, directors, and owners are examples of internal users; people within a company that use the information for daily operations. An income statement can help determine where expenses need to be cut or where expansion would be wise because of revenue generation. The retained earnings statement helps with decisions to make dividend distributions or invest excess earnings back into the business. A director could use the balance sheet quickly to review if liabilities are too far exceeding the equity of the company. Employees could use cash flow statements as proof of performance for compensation requests. Investors and creditors are examples of external users because they are persons outside of a company using the financial statements. Investors review these statements when making investment decisions. They need to see profitability and dividend distributions. The information is also used in making calculations such as return on assets or debt to total assets. Creditors also use the information on these statements to calculate ratios for determining whether or not to lend money, interest rates at which to lend, or even the length of the term for which they are lending. In ummary, one can see how accounting and the four basic financial statements it produces (income statement, retained earnings statement, balance sheet and statement of cash flows) are an integral part of any business entity. Businesses use these statements both internally and externally to function. The fact that public accounting has been part of the business structure for over a century shows its true value. Referenc es Hendrickson, H. S. (2007). Encyclopedia of business and finance (2nd ed. ). Detroit, MI: Macmillan. Weygandt, J. J. (2008). Financial accounting (6th ed. ). Retrieved from The University of Phoenix eBook Collection database. How to cite Financial Statements, Essay examples Financial Statements Free Essays For a business owner, their main goal is to make a profit, and become successful so they can have a long future. In order to do that, he or she will have assets that will outweigh their liabilities and expenses, to gain a profit in the company. In a company there are four financial statements (Balance sheet, Income statement, Retained earnings statement, and Statement of cash flow) that he or she must have so investors can see in different time periods how their company is doing. We will write a custom essay sample on Financial Statements or any similar topic only for you Order Now â€Å"Preparing an income statement is one of the basic responsibilities of the accounting function. (Alvis, Hillstrom, 2006, para. 3) This financial statement lets his or her investors know how well he or she did on revenues after they had to pay out their expenses for the time period. This lets the investors know how his or her business is doing in the product or service in which their selling. Cash is the most important asset a company can have, because he or she can pay expenses without having to liquidate any other assets (ex. computers, office furniture, etc. ). It also lets them know how much expenses him or her generally have going out of the business. In preparing a Retained Earnings Statement, him or her first need to take his or her retained earnings, which is the money that was earned off of the common stock, and him or her want to use to grow the business instead of paying the money out in dividends. He or she will add retained earnings to their net income, then subtract out any dividends that will be paid to stockholders. That will show him or her their total Retained Earnings. â€Å"Some investors seek companies that pay high dividends. Other investors seek companies that instead of paying dividends reinvest earnings to increase the company’s growth. Lenders monitor their corporate customers’ dividend payments because any money paid in dividends reduces a company’s ability to repay its debts. † (Kimmel, Weygandt, Kieso, 2003, p. 13). The Balance Sheet describes how his or her business is doing with its assets and liabilities and stockholders’ equity. It is the basic accounting function. He or she must list out all of the assets, which could include: cash, accounts receivable, prepaid expenses (ex. Insurance payments), equipment, and buildings. Assets are on one side of the equation. The other side of the equation should be his or her liabilities and equity. Liabilities are different expenses that are paid for the company such as: Accounts payable (the items you purchased on credit), taxes, and accrued liabilities. Stockholders equity is common stock (new money from stockholders) added in with the retained earnings (money that he or she have kept to grow their business). Liabilities and equity should equal the same amount as assets. Statement of Cash Flows is broken into several sections. The first section will have cash that the business has received for operating activities. The product or services that have sold would be in this category. Also, if he or she had expenses to make the product (wrapping paper, tape, and mixing solution) this would be subtracted from the cash that was had gained from operating activities. The next section would the equipment or supplies purchased for investing in the company. The next section will be the cash that he or she has generated by people financing their company. This would include, stockholders buying new stock, and a bank lending the company money. He or she would then take the cash that has been received from operating activities and the financing money and that would be how much cash the company has at that particular time period. To see how a company is doing financial reports can be run on a monthly basis, and use the technique comparative reporting. Management could compare current months to prior months to see if the company is making a profit or losing money throughout the months. Businesses use these records to see if it has the financial means to expand their business more. Would they be able to hire more employees, purchase new locations? Investors also use this information to see how the company is progressing, or if it the profits aren’t as big as they use to be. This could be a sign for trouble down the road. ? WORK CITED Alvis, J. M. Hillstrom, L. (2006). Income Statements. In M. M. Helms (Ed. )Encyclopedia of Management, (5th ed. , pp. 367-371) Detroit: Gale Retrieved November 6, 2010, from Gale Virtual Reference Library via Gale: http://go. galegroup. com/ps/start. do? p=GVRLu=Apollo Kimmel, P. , Weygandt, J. , Kieso, D. (2003). Essentials of accounting: Tools for business decision making (2nd ed. ). Hoboken, NJ: Wiley. How to cite Financial Statements, Papers Financial statements Free Essays string(52) " its consequences and difficulties they have faced\." Findings – Authors have found out that the adoption of fair value of financial assets has increased the disclosure requirements and It gives more value to financial statements. Results obtained from research revealed that earnings have decreased due to convergence to ALAS 39 and Management has overall positive perception regarding adoption of fair value for financial assets. Key Words Fair value, Diversified holdings, Earnings per Share, Return on Investment Paper Type Research paper 1. We will write a custom essay sample on Financial statements or any similar topic only for you Order Now Introduction For many years, the users of financial statements have sought relevant and timely Information about balancing instruments. Traditionally, the elements of financial statements – assets, liabilities, Income and expenses ? have been recognized under the historical cost and as such, the financial instruments, not different from the rest, were measured at historical cost. During the sass, some categories of financial Instruments changed from being based entirely on historical cost to a mixed historical cost,’market value approach, reflecting developments in the accounting standards. For example, under this model the trading book in the banks is measured at market value while the banking book is measured at historical cost. However, after sometime it became apparent that such a separation does not always reflect the way banks manage their books. Trading book Instruments are, for example, used to hedge the interest rate risk in the banking book. Over time greater use will probably be made of credit derivatives to hedge credit risk in the banking book. Where there is hedging of this kind, the trading book item has to be shown at book value. (Jackson, 2000; Lodge, 2000). Due to such discrepancies, the need for a revision of the measurement of financial instruments came into existence. However, with the nonviolence to ALAS 39, the measurement of financial instruments was diverted to fair value. The superiority of fair value measurement over historical cost accounting has been gaining broad-based acceptance among accounting professionals and standard setters (Berth, 1994: Berth et al. , 1995). It Is believed that fair value measurements and recognition of these values in the financial statements, along with adequate disclosures, will provide accurate, comprehensive and timely information to evaluate an enterprise’s exposures to financial risks, as well as rewards In a proper Asia (Adamant, 2002; Ball, 2006). Though there are detailed discussions as to why financial instruments should be recorded in the balance sheet at fair value, they do not explore the earnings process and the interrelationship between fair value ‘OFF evident that there is a lack of research in this area, and this study aims to fill this void. The purpose of this paper is to examine the academic literature on the effect of the adoption of Fair value for Financial Instruments on the earnings of an entity. In the study, we have focused on the effect of adoption of fair value for the financial stets on the earnings of Diversified Holdings, from the perspective of the company. On the outlook, we test whether the level of earnings is significantly lower before the convergence to ALAS, and reported earnings is more value relevant during the FIRS period. This study covers the two time periods, one year before the convergence and one years after the adoption (FIRS period). Since there was no other change in the financial reporting environment of Sir Lankan during the period studied, we assume that the potential country-level factor that could affect firm’s earnings during the erred was the convergence FIRS. Secondly, this work paper provides the impact of the change in accounting treatment on the Return of Equity and Return on Investments of the holding company. Finally, this study reviews the insights and perceptions of the managers of the holding companies on the adoption of fair value for the measurement of Financial Assets in their entities. 2. Literature Review 2. 1 Background Over the years there has been a burgeoning need among standard setting bodies, academia, shareholders and professional bodies in improving the comparability and reliability of financial statements. To achieve this objective, SAAB introduced many relevant accounting standards including one of the most complex and debatable important standards namely, FIRS 13 and AS 39. FIRS 13- Fair Value Measurement defines the fair value, sets out framework for measuring fair value and discusses the disclosures required on fair value measurement. One of the major modules discussed in FIRS 13 is that fair value measurement of financial instruments. FIRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the assortment date (I. . An exit price). That definition of fair value emphasizes that fair value is a market-based measurement, and not an entity-specific measurement. (Ball, 2006). When measuring fair value, an entity uses the assumptions that market participants would use when pricing the asset or liability under current market conditions, including assumptions about risk (Penn an d Belly, 2010). According to AS 39 financial asset can be defined as any asset that is A. Cash, B. An equity instrument of another entity, a) a contractual right: I. O receive cash or another financial asset from another entity; or it. O exchange financial assets or financial liabilities with another entity under conditions that are potentially favorable to the entity: or b) a contract that will or may be settled in the entity’s own equity instruments and is: I. A non-derivative for which the entity is or may be obliged to receive a variable number of the entity’s own equity instruments; or I’. A derivative that will or may be settled other than by the exchange off fixed equity instruments. For this purpose the entity’s own equity instruments do not include instruments that are themselves contracts for the future receipt or delivery f the entities own equity instruments. 2. 2 Prior studies on Fair Value measurement of financial assets Previous research articles and case studies on fair value measurement adoption provide valuable insights on how other countries have dealt with its consequences and difficulties they have faced. You read "Financial statements" in category "Papers" A case study on how China has adopted fair value accounting (Penn and Belly, 2010) discusses on high degree of adoption of FIRS fair value measurement for financial instruments within China AGAPE. Since China is an emerging country they place much attention on adopting international standards to attach with the investors’ information requirements. As per the proposals of Joint Working Group of standard setters, the reliability of financial statement figures plays an important role when providing information to the users of financial statements. With the fair value adoption for financial assets, it clearly gives an idea of true economic conditions of the financial assets. On the other hand it has an inherent risk of volatility incorporated in to financial statements. In Fair Value Accounting and Future Financial Instruments Jackson and Lodge) discusses on the difficulties in adopting fair value accounting in banking sector as they have high amount of financial assets in their asset portfolio. Hence banking books are exposed to higher amount of volatility if fair value accounting is adopted. Also when bringing financial assets to fair value the discounts rate to be used is debatable; whether to use market rate or internal discount rate. Additionally banks might be taxed on unrealized gains if gains from fair value changes are used for tax purposes. When fair value measurements are calculated only for external financial reporting purposes, they often will not have been produced from a defined process with consistent valuation methods and systems and strong internal control. We are concerned that fair value prepared only for external reporting purpose, not used by the enterprise to manage its business and prepared without the benefit of major invest ment in systems and human resources, may be unreliable and frequently would present significant audit difficulties. Although this situation present today with fair value disclosures for financial instruments and for hedging requirements of AS 39 and FAST Statement No. 33, the broader use of fair value measurements for all financial instruments in the primary financial statements would exacerbate the reliability and audit issues† explains Leister Wilson and Ernst Young in his article Fair Value and Measurement; Where the conflict lie. 3. Methodology The main research question, as outlined above, is â€Å"Does the measurement of fair value for financial assets of diversified holdings improve the earnings? To provide a consistent platform for assessing the impact from the measurement of fair value for financial assets, this study examines the diversified holdings which had been listed at Colombo Stock exchange. Diversified Holdings are of particular interest for several reasons. Firstly, the core business of the diversified holding companies is engaging in considerably large amount of investm ents compared to that of the companies listed under other sectors in Colombo Stock Exchange. Secondly, the focus on this study is on the Financial Information relating to the â€Å"company’ rather than the â€Å"group† because when taken as a group, the fair value impact of investments of companies might set off each other thus giving misleading results and conclusions. This study analyses the related information of four holding companies namely, John Keels Holdings PL, Carson Cumberland PL, Aitkin Spence PL and C T Holdings PL which represents 74% of the total market capitalization of diversified holdings listed in Colombo Stock Exchange as at 22nd November 2013. Refer appendix 01). Data for the study includes financial accounting information retrieved from the annual reports of the companies in the selected sample pertaining to the years 2012/13 and 2011/12 and non-financial data on the perception of the managers on the convergence, obtained in the form of open ended interviews with a set of limited questions. The variables used in this research paper to det ermine the effect of the earnings of the company as a result of convergence are earnings per share (PEPS) and return on investments (ROI). Data analysis for the study includes both quantitative and qualitative methods. A Comparative Analysis has been used to study quantitative data and a perception analysis and they were conducted to identify the perceptions of financial mangers regarding the measurement of fair value for financial assets. To pursue its overall research goal, the study is organized to address the following three interrelated research objectives. The first objective of the study is the examination of the change in accounting treatment and disclosure requirements due to the measurement of fair value for financial assets. For this purpose a disclosure analysis was conducted using the annual reports of the selected sample. Under this methodology, a comparison was carried out between the disclosures made in the annual reports of 2011/2012 and the disclosures made in 2012/2013 annual reports in order to ascertain the new disclosure and measurement requirements from the adoption of SLURS/ALAS. The second objective of the study is the examination of the impact of the change on key performance indicators (PEPS, ROI). The hypothesis selected for the study supports this objective is â€Å"The measurement of fair value for financial assets has increased ROI and PEPS of diversified holdings†. The methodologies used for the analysis are mean, variation and regression analysis. The approaches were carried out in this study to pursue the above designated objectives. As per the first time adoption of ALAS/SLURS, the companies were required to prepare conciliations to restate 2012 and 2011 financial statement figures in accordance with Sulfurs. The increase or decrease in fair value of financial assets due to adoption of Fires was obtained using these reconciliations. Then the delta of ROI and PEPS was calculated based on the change in fair value. Further, the mean and variation of such calculated ROI and PEPS was calculated using relevant formulas to identify the average impact on earnings due to the fair value measurement. Then a relationship between particular variables was obtained using regression analysis to identify the eat value of variable to test the hypothesis of the study which states that there is a positive impact on ROI and PEPS due to the measurement of fair value. Variables used in regression analysis are the value of financial assets before the convergence of with regard to financial assets were obtained from 2011/2012 annual reports, which had been measured under cost and they were analyses against the comparatives in 2012/2013 annual reports which have been restated as per the ALAS 39. As such, the outright change occurred as a result of the convergence to FIRS could be able to identify. The percentage difference between above two variables is used as X values of the regression graph and the resulted ROI and PEPS were taken to the Y axis. After conducting regression test we could identify beta values between the variables and the nature of relationship among them. The third objective of the study is to analyses manager’s perception regarding the measurement of fair value. To achieve this, a set of open ended interviews were conducted with manages to identify their views on the convergence. Here we have not tested any hypothesis nonetheless generalized their own views. 4. Analysis and Discussion 4. 1 Disclosure Analysis Adoptions of Sulfurs significantly broaden the presentation and disclosure requirement. From the convergence, it is expected to reduce the risk of wrong decision making and give more relevant information (Ryan, 2008). Based on the research carried out, it was identified that the quality of disclosure on financial assets has been improved. The financial statements prepared according to CLASS have not included any separate disclosures on financial assets, further the investments on financial assets have been recognized at cost and only the market value of the investments have been separately disclosed. In the examination of financial reports prepared according to the Sulfurs; after convergence to ALAS 39, it was evident that financial assets are disclosed separately and measured at fair value. The convergence requires disclosing definition of fair value, hierarchy in determining fair value, fair value used in initial and subsequent measurement, and also the fair value used in impairment testing of financial assets. At the circumstances where the fair value of financial assets recorded in the statement of financial position cannot be rived from active markets, the fair values have been determined using valuation techniques and these valuation techniques have been disclosed in the notes to the financial statements. If this is not feasible and a degree of Judgment is required in establishing fair values, the liquidity risk, credit risk and volatility have been disclosed as the basis for Judgments. 4. 2 Analysis of the impact of the change on the key performance indicators This analysis examines the impact of the change on key performance indicators, the Earnings per Share (PEPS) and Return on Investment (ROI). The ROI has been calculated using following formula and the calculations and are included in Appendix 01. ROI Earnings change due to convergence Total asset value as per ALAS transition to SLURS/ALAS. Mean of ROI has decreased by 1. 25% which revealed that the fair value measurement for financial asset has a negative impact on the earnings. The PEPS has been calculated using following formula: = Earnings change due to convergence PEPS Weighted average number of shares The mean value of PEPS has increased to 15. 18%. The increment of ROI is largely due to the increased PEPS of CT Holdings. CT holdings PEPS has increased by a significant amount due to the lower number of shares. PEPS of John Keels Holdings and Aitkin Spence have decreased and PEPS of Carson has increased by a negligible amount. Graphs for above discussed results are presented in Appendix 02. Graph 01 shows the relationship between the value of financial asset according to both ALAS and CLASS and the respective ROI. A trend line was obtained and the formula of the regression line was extracted. The beta value of the line is -10. The downward slope shows that there is a negative relationship between the earnings and the changes on air value measurement. Graph 02 shows the relationship between PEPS and the value of financial asset according to both CLASS and ALAS. The slope of the regression line was -6. Under this also, a negative impact was identified. 4. 3 Perception Analysis This was carried out in order to address the perception of key financial managerial persons of the companies in the selected sample regarding the adoption of fair value for financial assets. The conversion process of Sir Lankan Accounting Standards with International Financial Reporting Standards (FIRS) has given an opportunity to the UAPITA market to raise confidence of stakeholders and promote good accounting practices. But it’s human nature to dislike change, and most of the responses to the changes arising from the use of the new Standards have been negative. In some cases, despite a similar requirement being existent in the Sir Lankan Standards (Class) companies want to continue their past practices, not recognizing that accounting has also changed to keep pace with business and the environment. Therefore perception analysis has been carried out to get overall idea on organizations’ perception regarding fair value adoption and the results of the analysis has briefed below. Approximately one fourth of the interviewees were in the perception that accounting for financial instruments considered a challenge as companies will be required to identify such instruments. FIRS provides detailed guidance on recognition, measurement and disclosure requirements for financial instruments. It requires all financial instruments to be initially recognized at fair value, while some instruments are re-measured at fair value at each reporting date. This will result in increased volatility in the income statement and/or equity. Measuring at financial instruments at fair value is considered as cumbersome and external stakeholders and create awareness of the impact of adoption of fair value for financial assets. The rest of the interviewees claimed that the adoption of fair value in financial instruments has upgraded the quality of financial instruments to world class level. Suppliers, lenders, counter parties, customers, investor community and many other stake holders will give a premium for the best as they receive more reliable and up to date information through financial reports. . Conclusion The first objective of this study is to assess of the change in accounting treatment and disclosure requirements due to the measurement of Fair Value for Financial Assets. From the study performed, it could be identified that, quality of disclosure on financial assets under SLURS has improved after the convergence which in turn has increased the value of the financial statements. As per the second objective of this s tudy, the impact of convergence on the change of key performance indicators (PEPS, ROI) of selected companies was analyses. The hypothesis built up at the enhancement of the research is â€Å"The effect of adopting Fair value for Financial Assets has a positive impact on Key Performance Indicators†. Based on the results obtained from our research revealed that, the earnings have decreased due to the convergence to ALAS 39. This concludes that our hypothesis has rejected and null hypothesis has accepted as the conclusion. The final objective of the research was to obtain the perceptions of the convergence from the financial managers on the convergence to obtain an overall idea on the convergence of ALAS. How to cite Financial statements, Papers