Toyota's Financial Reporting: Contexts And Recommendations
Measurement Models and Conceptual Framework
The basic conceptual framework behind the IASB and the accounting standards and recommendations made by this group is very straightforward. The standards are meant to create greater transparency, accuracy, and efficacy in financial reporting, which itself has the goal of providing useful information about the reporting entity's capacity as a capital provider -- to investors, creditors, etc. (Walton, 2011; Ernst & Young, 2008). On more far-reaching level, the conceptual framework of the IASB and its issued standards is built on the premise that consistency in accounting leads to more effective decision making when it comes to capital, which leads to a more productive and efficient economy (Walton, 2011). There are many specific ways in which consistency and transparency are encouraged through various measurement models set in this framework.
Revenue recognition is one specific area of accounting and financial reporting recognized and carefully defined within the larger conceptual framework of the IASB, though there is still some debate and a possible transition occurring in the manner of reporting that will be recommended (Ernst & Young, 2008). At the current time, IASB standards and principles of revenue recognition include all elements that have or are probable in the near future to have an economic benefit to the company -- either through increasing assets and/or decreasing liabilities -- and that can be measured reliably (Walton, 2011). There are many complexities that arise when trying to implement this seemingly simplistic principle and measurement methodology, as will be seen in an examination of Toyota; determining fair values for future contracts is often imprecise and leaves room for error and deliberate manipulation, causing certain concerns in the area (Walton, 2011; Ernst & Young, 2008).
The complexities of developing clear and consistent accounting and reporting standards are also exemplified in the area of asset impairment. Simply put, asset impairments reflect the difference between the recoverable value of an asset and the carrying amount of that same asset, however varying circumstances can impact the manner in which this difference is measured and how the overall asset should be reported (Walton, 2011; Ernst & Young, 2008). In many cases, when the recoverable amount of an asset I lower than the carrying amount, the value of the asset is lowered to the carrying amount, but again this does not always hold true (Ernst & Young, 2008). Toyota's financial reporting includes some problematic items in this area, as well.
The following section provides a brief overall analysis of Toyota's financial reporting in the context of the company as an institution, and with an acknowledgment of the Japanese culture. Though an overall assessment of the company's reporting practices and the degree to which it meets (or fails to meet) the standards established by the IASB will be provided, special attention will be paid to the two areas of measurement methods detailed above. The accounting and reporting of revenue recognition is, both generally speaking and for Toyota specifically, more straightforward than asset impairment, but in both areas there are certain steps Toyota could make to bring its accounting practices more inline with those defined and advocated by the IASB (Walton, 2011). The use of the company's annual report as well as other publications that contain accounting and activities reports will facilitate this assessment.
Financial Reporting in a Globalized World; Company and Cultural Contexts
Toyota is strongly committed to its international efforts, and both the company's and external publications reflect a clear recognition of the importance to the company, to the industry, and to the nations and regions it serves of adapting to individual communities and working to meet their needs and concerns (Toyota, 2011; Environmental Report, 2011). When it comes to standardized accounting methods, Toyota has also followed suit to some degree, though here the company is actually following its largest consumer nation rather than the international community, using report styles and methods standards in the United States (Toyota, 2011; Toyota, 2011a). This leaves certain discrepancies between the company's practices and IASB recommendations and standards.
One of the most clear-cut and essential gaps between Toyota's accounting practices and those advocated by the IASB standards is in the area of revenue recognition, for which the company provides only the most basic figures in terms of sales and financing operations, without any indication of how comprehensive this is in terms of the IASB's definition of any expected increase in…