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Financial Reporting | Financial Statements

Financial Reporting is the mirror of the financial health of an organisation. It is an impediment to prepare financial statements of a business in order to facilitate prudent decision making by each and every stakeholder of the business.


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What is Financial Reporting?

Every business sector has different divisions, whether manufacturing or service, which work day by day to achieve organizational objectives. Such divisions may or may not work interdependently but at the end of the day they are connected together by one common thread – Accounting & Finance.

The accounting & financial aspects are registered for each and every organization and are communicated to different stakeholders. There are two main forms of reporting-Financial reporting for various stakeholders & Management reporting for an organization's internal management. All of these reports are essential and are an integral part of an organization's accounting and reporting system. Yet given the number of stakeholders involved and the legislative & other regulatory criteria, financial reporting is an organization's most significant and crucial activity. Corporate Governance is a crucial aspect of this. Throughout the following section, let us explore different aspects of Financial Reporting.

Financial Reporting includes providing financial information to the various stakeholders regarding the organization's financial results and financial status over a defined period of time. Such stakeholders include-investors, creditors, the public, debt suppliers, government agencies and governments. The duration of the financial reporting is quarterly & annual for listed firms.

Financial reporting is usually considered an Accounting end product.

Typical elements of financial reporting are:

1. Financial Statements – balance sheet, income & loss account, cash flow statement & Report of adjustments in shareholders 'equity

2. The Notes to Financial Statements

3. Changes to financial statements Quarterly & Annual reports (for listed companies)

4. Prospectus (for IPO companies)

5. Management Discussion & Review (For public companies)

The Government and the Indian Institute of Chartered Accounts (ICAI) released various accounting principles & guidelines notes that are applicable for financial reporting purposes. It ensures uniformity across various diversified sectors as their financial statements are prepared & delivered. Now let's explore the financial reporting priorities & objectives.

Objectives of Financial Reporting

According to the International Accounting Standard Board (IASB), the aim of financial statements is to provide information on the financial situation, results and adjustments in the financial condition of an organisation that is useful to a wide variety of users in making economic decisions

Financial Statements are the mirror of an organisation. The main purpose of preparing Financial Statements are described below:

1. Financial Statement form the basis of information for analysis, strategizing, budgeting and decision making for the business.

2. To provide actionable information to stakeholders including investors, promoters, creditors and debtors which enables them to take prudent and informed decisions regarding the business.

3. In case of listed companies, Financial Statement form the basis of decisions of shareholders about various aspects of an organization.

4. Providing information to shareholders & public at large in case of listed companies about various aspects of an organization.

5. Providing details about an organization's economic capital, claims to those capital (liabilities & equity of the owner) and how these 

resources and claims have experienced change over time.

6. Providing information about how an company procures & uses various tools.

7. Providing information to various stakeholders on an organization's performance management as to how effectively and ethically they carry out their fiduciary duties & obligations.

8. Providing the legislative auditors with knowledge which in effect facilitates the audit.

9. Improving social security by looking at workers, trade union and government interests.

Importance of Financial Reporting

Financial Reporting is the most important and impediment aspect relating to the financial aspect of a business. Financial Statements are literally the mirror if a business’s performance. Every stakeholder needs financial statements for taking various reasons & purposes. The following points emphasize why the structure for financial reporting is critical.

1. Complying with different statutes and statutory standards of support and organisation. The organizations must send financial statements to ROC, government agencies. In the case of listed firms, quarterly as well as annual reports are expected to be reported and published in the stock exchanges.

2. It promotes formal auditing. The statutory auditors are required to inspect the financial statements of the company in order to express their opinion.

3. Financial reports are the backbone of financial preparation, research, benchmarking and decision-making. These are used for the purposes set out above by different stakeholders.

4. Financial reporting helps companies boost both domestic and international money.

5. On the basis of financials, the public in large can analyse the performance of the organization as well as of its management.

6. For the purpose of procurement, labour contracts, government services, etc., companies are expected to file their financial reports and statements.

We may, therefore, infer from the above that financial reporting is very relevant from the point of view of different stakeholders. This is getting very complicated at times for large organisations, but the advantages are much more complicated than those. We may assume that financial reporting provides accurate and appropriate information that is used by several stakeholders for different purposes. A sound and reliable financial reporting structure across industries encourage fair competition and enable capital inflows. This, in effect, leads to economic growth.

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