Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form which is easy to understand.
2. What Is Financial Reporting?
•Financial reporting is the disclosure of financial results
and related information to management and external
stakeholders (e.g., investors, customers, regulators)
about how a company is performing over a specific
period of time.
•In case of listed companies the frequency of financial
reporting is quarterly and annual.
•Financial Reporting is usually considered an end
product of Accounting.
4. Statement of Financial Position.
Statement of Financial Position, also known as the Balance
Sheet, presents the financial position of an entity at a given
date. It is comprised of the following three elements:
• Assets: Something a business owns or controls (e.g. cash,
inventory, plant and machinery, etc).
• Liabilities: Something a business owes to someone (e.g.
creditors, bank loans, etc).
• Equity: What the business owes to its owners. This represents
the amount of capital that remains in the business after its
assets are used to pay off its outstanding liabilities. Equity
therefore represents the difference between the assets and
liabilities.
5. Income Statement.
• Income Statement, also known as the Profit and
Loss Statement, reports the company’s financial
performance in terms of net profit or loss over a
specified period. Income Statement is composed of
the following two elements:
• Income: What the business has earned over a period
(e.g. sales revenue, dividend income, etc).
• Expense: The cost incurred by the business over a
period (e.g. salaries and wages, depreciation, rental
charges, etc).
• Net profit or loss is arrived by deducting expenses
from income.
6.
7. Cash Flow Statement
• Cash Flow Statement, presents the movement in
cash and bank balances over a period. The
movement in cash flows is classified into the
following segments:
8. • Operating Activities: Represents the cash flow
from primary activities of a business.
• Investing Activities: Represents cash flow from
the purchase and sale of assets other than
inventories (e.g. purchase of a factory plant).
• Financing Activities: Represents cash flow
generated or spent on raising and repaying share
capital and debt together with the payments of
interest and dividends.
9. Statement of Changes in Equity
• Statement of Changes in Equity, also known as
the Statement of Retained Earnings, details the
movement in owners’ equity over a period. The
movement in owners’ equity is derived from the
following components:
• Net Profit or loss during the period as reported in
the income statement.
• Share capital issued or repaid during the period.
• Dividend payments.
• Gains or losses recognized directly in equity (e.g.
revaluation surpluses).
• Effects of a change in accounting policy or correction of
accounting error
10. 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.”
11. • The following points sum up the objectives & purposes of
financial reporting –
• Providing information to the management of an organization
which is used for the purpose of planning, analysis,
benchmarking and decision making.
• Providing information to investors, promoters, debt provider
and creditors which is used to enable them to male rational
and prudent decisions regarding investment, credit etc.
• Providing information to shareholders & public at large in
case of listed companies about various aspects of an
organization.
• Providing information about the economic resources of an
organization, claims to those resources (liabilities & owner’s
equity) and how these resources and claims have undergone
change over a period of time.
• Providing information as to how an organization is procuring &
using various resources.
12. • Providing information to various stakeholders
regarding performance management of an
organization as to how diligently & ethically they
are discharging their fiduciary duties &
responsibilities.
• Providing information to the statutory auditors
which in turn facilitates audit.
• Enhancing social welfare by looking into the
interest of employees, trade union &
Government.
13.
14. How to Create Financial Statements
• First, staff members create the original financial
statements. Where possible, electronically
link the trial balance to the financial
statements. Doing so will expedite the financial
statement process and enhance the integrity of
the numbers. Ask the staff member to do the
following:
• Prepare the initial draft of the statements
• Create clear disclosures
• Complete a current financial statement
disclosure checklist
15. • Research any nonstandard opinion or report
language (place sample reports from PPC or other
sources in the file) — later the partner will compare
this supporting document to the opinion or report
• Research any additional reports (e.g., Yellow
Book, Single Audit); place copy of such reports in
the file — the partner or manager will have such
reports available for their review
• The staff person should review the partner’s
planning document to see if any new standards
are to be incorporated into this to year’s financial
statements
16. How to Proof the Financial Statements
• Second, proof your financial statements. The proofer
usually does the following before the partner or
managers’ review:
• Add (foot the numbers for) all statements,
notes, schedules
• Tick and tie numbers.
• Review financial statements for compliance
with firm formatting standard
• Read financial statements for appropriate
grammar and punctuation (consider
using Grammarly)
• Compare the table of contents to all pages in the
report
• Review page numbers.
17. Conclusion
• So we can conclude from the above points that
financial reporting is very important from various
stakeholders point of view. At times for large
organizations, it becomes very complex but the
benefits are far more than such complexities. We
can say that financial reporting contains reliable and
relevant information which are used by multiple
stakeholders for various purposes. A sound & robust
financial reporting system across industries
promotes good competition and also facilitates
capital inflows. This, in turn, helps in economic
development.
