Optimizing the Scopes and Structure of the Financial Statements

Abstract

Given the growing demand for information, an essential problem is the adequacy of the financial reporting scopes to their processing capacity There is an urgent problem of scientific substantiation of the optimal composition of financial reporting and the nomenclature of its items, to maximize its analytical capacity for decision–making purposes.

The aim of paper is to study the relationship between the business scopes and the use of the balance sheet items at enterprise level, and to build a mathematical model that need to be considered when designing forms of the balance sheet.

The study of the balance sheet for 102 Ukrainian enterprises shows a notable correlation between the net revenue from sales and the proportion of the number of items used in the current balance sheet. This correlation is expressed by a linear equation allowing for the following conclusion: for the studied sample of enterprises, annual increase in the net revenues by 100 million UAH ceteris paribus leads to average 0.1 percent increase in the proportion of the number of the used balance sheet items.

The balance sheet format recommended by the Ukrainian Ministry of Finance is made without consideration to the real needs of enterprises in the reported data on the financial performance, which are largely dependent on the business scopes and conditions and sectoral specifics of enterprises. However, the comprehensive analysis of the itemization of the balance sheet currently existing in Ukraine allows for substantiating its items nomenclature containing 33 major items (mandatory minimum) and sub–items (items of second order) specifying the major ones.

The proposed principle for constructing the balance sheet enables for better compliance of the size and structure of the reported data with business needs of enterprises, and for the level of detail of balance sheet items required for financial analysis and effective management.