Financial reporting refers to the disclosure of vital financial data as well as other activities that the organisation has carried out to its stakeholders. The stakeholders include the banks, creditors, investors, government, regulatory agencies and others. Financial reporting helps the stakeholders in getting an idea about the company’s actual financial position at a particular time.
The objective of financial reporting is to highlight the achievements of an organisation in a timely manner. The achievements can be the increase in profit, sales, recognition or awards that the company has received, market share (Also see What is Share Certificate?) , as well as any discoveries or success in the research and development that it has carried out. By disclosing the information, the banks, creditors, investors, government, regulatory agencies and the public will be able to know the financial condition of that company (Also see Does Your Company Prepare Accounts Receivable Aging Report?).
Companies that need to rely on external funding may use financial reporting as one of the ways to market themselves so that they can attract investors and raise the funds they need. Also, some companies that would use internal financial reporting to let their employees know about the company’s financial position and business (Also see How Can Accountants Help Small Business Owners?) operations. This can act as a tool of motivation too.
Some documents are required to compile the financial report for financial reporting purpose. Companies can generate their financial reports quarterly or annually. As financial reporting involves a lot of financial statements, please do not hesitate to contact an accounting firm in Johor Bahru if you need help in producing those complicated reports and documents.
A financial report comprises of the director’s report, some financial statements like the balance sheet, income statement, statement of cash flow, the notes to account, as well as the audited report. The director’s report is a document that provides information about the significant achievements as well as operational; performance of the business (Also see Accounting Tips That All Business Owners Should Know). If the company did not perform well in that period, the director’s report would provide the reasons for the underperformance.
Apart from the director’s report, the financial report also includes financial statements such as the balance sheet, income statement and the statement of cash flow. These statements help in presenting the company’s performance quantitatively. If a company has a few different units or subsidiaries, it may have both consolidated and stand-alone financial statements.
Besides, the note to accounts in the financial report is a document that includes the accounting policies and accounting methods that the company implements to record the business transactions that have taken place. Apart from that, the auditor’s report provides the auditor’s independent opinion on the company’s financial position as well as the accounting policies implemented.
In a nutshell, financial reporting is crucial as it provides the information that the stakeholders could use. This is for them to make financial decisions with the information the company has disclosed through financial reporting.