UAFRS is an acronym for Uniform Adjusted Financial Reporting Standards. Often referred to as “Uniform Accounting” or “Uniform Financial Reporting.”
UAFRS is an alternative set of standards for reviewing and analyzing financial statements aimed at creating more reliable and comparable reports of corporate financial activity.
UAFRS does not require management teams to restate their financials. UAFRS adjusts the reported financial statements to create as consistent a report of financial activity as possible, free of distortions from changing or inconsistent financial reporting policies from year to year or across firms.
The term “uniform” suggests that all financial reporting rules should be made consistent across companies and across time for analysis of financial reports. This desired uniformity reflects that GAAP and IFRS financials are an antithesis to uniformity in financial statement reporting.
A simple example is the FIFO/LIFO accounting policy that management teams choose for reporting cost of goods sold and inventory levels. It is perfectly acceptable for one company to use the Last-In-First-Out method for reporting cost of goods sold. Meanwhile, a peer company could choose the First-In-First-Out method. Both companies have elected a perfectly legal and acceptable accounting method under Generally Acceptable Accounting Principles. However, each of these firms now has incomparable profits, costs, and balance sheets. Many other key financial performance indicators will also be victim to this simple change.
The UAFRS Council has identified more than 130 such inconsistencies in GAAP and IFRS accounting policies. (Generally Accepted Accounting Principles in the United States and International Financial Reporting Standards.) This means there are more than 130 reasons why company financial measures are incomparable to each other. This also makes company performance indicators incomparable over time, as these principles have changed over time, along with company’s choice of electives.
These issues are highlighted by the extensive research and documentation of the inconsistencies, misclassifications of categories and terminology, and lack of reliability of as-reported financial statements under GAAP and IFRS.
Uniform accounting is achieved by adjusting the as-reported financials into uniformly restated financial statements. Uniform metrics such as uniform margins or uniform assets are calculations of those metrics made from uniform financial statements. The term “adjusted” reflects the process of achieving UAFRS by adjusting the as-reported financial statements by first disassembling them and then re-building based on a consistent set of accounting rules.
More detailed disclosure of financial activity by management is desirable, however it is not necessary to achieve significant benefits from simply adjusting the as-reported GAAP and IFRS financial statements into UAFRS-based financial statements.
Resulting UAFRS-based earnings, assets, debts, cash flows from operations, investing, and financing, and other key elements become the basis for more reliable financial statement analysis.
Thereby, business performance, equity valuation analysis, and credit analysis under UAFRS-reported numbers begin to provide significant improvement over any analysis driven by as-reported numbers.
A growing base of research is now showing the proof behind UAFRS-based analysis.
UAFRS-based credit analytics appear to consistently provide an early signal on the credit worthiness and riskiness of corporate debts.
In a plethora of case examples and larger studies, UAFRS-based equity analysis is showing an ability to better classify firms as “cheap” versus “expensive,” or as low quality versus high quality vis a vis analysis such as economic profit.
Even simple business performance analyses seem to benefit from the fewer distortions, analyses such as the DuPont method for analyzing margins and turns as the drivers of return on assets.
Some of the most compelling evidence has been in aggregate analysis, when looking at entire stock markets of USA, China, Germany, Singapore, and others. There is a clear relationship between market valuations and UAFRS earnings that does not at all exist between valuations and as-reported earnings.