In any industry, whether manufacturing or service, the functioning of all the departments may or may not be interdependent, but at the end of day they are linked together by one common thread – Accounting & Finance department. The accounting & financial aspects of each and every department are recorded and are reported to various stakeholders. There are two different types of reporting – Financial reporting for various stakeholders and Management Reporting for internal Management of an organization. But considering the number of stakeholders involved and statutory & other regulatory requirements, Financial Reporting is very important and critical task of an organization and is vital part of Corporate Governance.Financial Reporting is usually considered as end product of Accounting. According to International Accounting Standard Board (IASB), the objective of financial reporting is “to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions.” The main goal of financial reporting and analysis is to provide a clear picture of the financial condition of the business in both short term and long term. Given today´s volatile economy, having a complete and consolidated view of the financial performance of the company is key to success. However, reports nowadays are becoming longer and more cluttered. Reporting and Analysis has become more complex than ever due to rapid mergers and global acquisitions. Further, financial regulatory bodies are also exerting more pressure in an attempt to guarantee the accuracy of information provided to the public and the investing community.
Financial Reporting involves the following
1. The disclosure of financial information to the various stakeholders about the financial performance and financial position of the organization over a specified period of time. These stakeholders include – investors, creditors, public, debt providers, governments & government agencies. In case of listed companies the frequency of financial reporting is quarterly & annual.
2. The typical components of financial reporting are:
a. The financial statements – Balance Sheet, Profit & loss account, Cash flow statement & Statement of changes in stock holder’s equity
b. The notes to financial statements
c. Quarterly & Annual reports (in case of listed companies)
d. Prospectus (In case of companies going for IPOs)
e. Management Discussion & Analysis (In case of public companies)
Accounting principles adopted in the Financial Reporting
There are several accounting standards to choose from.For example, for-profit businesses, they can choose from International Financial Reporting Standards (IFRS), Accounting Standards for Private Enterprises (ASPE), or Non-GAAP reporting (for tax purposes). When choosing from several accounting standards to adopt, your specific business goals and the special circumstances of your company must always be the key considerations. Just as important is the consideration of who will use your financial statements both internally and externally.
Specific disclosures in Financial Reporting
It is important to remember that specific disclosures generally do not need to be provided if the resulting information is not relevant. It is important to assess yourself if the materiality of your disclosure is appropriate or you are just being overly cautious. The latter only adds to clutter in the report.
The language and the communication through Financial Reporting
It is important to look into the structure of your annual reports and accounts such that you need to ensure that all the necessary information is easily obtainable. It is also just as important that the language that you use is simple, understandable, and clear.