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Financial Management Study

Today, the problem of the accurate financial reporting is of the utmost importance of the effective financial management and reliable financial reporting. However, in actuality, many organizations face considerable problems with accurate and adequate financial reporting caused by the misbalance of expertise and financial literacy of financial managers. At this point, it is worth mentioning the fact that the financial reporting quality becomes particularly important in the contemporary business environment, when organizations have to forecast their development and they use financial reporting to make reliable forecasts. In such a way, organizational performance depends on the quality of financial reporting but, in such a situation, the question concerning factors contributing to the high quality of financial reporting arises. In this regard, it is possible to refer to the study conducted by McDaniel, Martin and Maines, “Evaluating Financial Reporting Quality: The Effects of Financial Expertise vs. Financial Literacy”, where the authors focus on the effects of financial expertise and financial literacy on the financial reporting quality.

On analyzing effects of financial expertise and financial literacy on the financial reporting quality, the authors place emphasis on the fact that, today, the debate over the supremacy of financial expertise over financial literacy. The authors define the framework of the debate. To put it more precisely, on the one hand, some specialists () argue that financial expertise is not essential for the overall success of the financial reporting, whereas the financial literacy is sufficient for the accurate financial reporting. At this point, it is worth mentioning the fact that the authors of the article argue that the financial expertise is still of the utmost importance for the accurate and adequate financial reporting. In such a way, the debate concerns the necessity of employment of financial managers of the high qualification that naturally implies the high costs being spent on wages and bonuses for such professionals or, alternatively, organizations should focus on the employment of financial managers, who have the basic literacy in financial terms and are capable to conduct financial reporting.


In the course of the study, the authors prove the fact that organizations employing well-qualified financial managers are more successful compared to companies relying on the financial literacy solely. At any rate, the researchers argue that organizations need to have financial expertise to maintain the steady and accurate financial performance, whereas the financial literacy alone increases the risk of error being made in the course of financial reporting. Hence, errors in financial reporting can provide investors and stakeholders with inaccurate information concerning the current financial position of organizations. In such a situation, the authors conclude that the financial expertise is essential for the effective and accurate financial reporting.


On the other hand, the authors argue that organizations can save costs on financial expertise because it is irrational to employ highly qualified professionals. Instead, they recommend employment of a few financial experts and the team of financial managers, who are literate and can conduct financial reporting. In such a way, organizations can save costs and obtain accurate and adequate financial reporting.
Thus, the financial expertise is still essential for the financial reporting quality.

References:


McDaniel, L., Martin, R.D. and Maines, L.A. (2002). “Evaluating Financial Reporting Quality: The Effects of Financial Expertise vs. Financial Literacy.” The Accounting Review, 77, 139-167.
Parrino, Kidwell, Jiambalvo. (2006). Fundamentals of Corporate Finance. New York: Wiley.