Financial Reporting

Financial reporting is a systematic process of recording and representing a company's financial data. The reports reflect a firm's financial health and performance in a given period. Management, investors, shareholders, financiers, government, and regulatory agencies rely on financial reports for decision-making.

The reports determine business assets, liabilities, cash flow, profitability, and shareholders' equity. Financial reports are standardized by two prominent frameworks—The Generally Accepted Accounting Principles (GAAP) and The International Financial Reporting Standards (IFRS).

• Financial reporting and analysis is the recording of financial information in the books of accounts. It reveals a company's true financial position.
• Financial reports include financial statements, notes to accounts, director's reports, auditors' reports, corporate governance reports, and prospectus. These reports are crucial for strategizing the future growth and sustainability of a firm.
• While formulating it, analysts focus on readability, clarity, precision, consistency, reliability, transparency, relevance, and comprehensiveness.

Financial reporting and analysis is the representation of financial transactions in the books of accounts. These reports provide insight for investors and creditors. Financial statements reflect a company's financial health. The reports are crucial as they become the basis for decision-making.

When it comes to financial requirements and regulations, there are mainly two frameworks — GAAP and IFRS. GAAP lists reporting guidelines for US-based public and private companies. The IRFS, on the other hand, has established a universally accepted standard for formulating such reports—followed by international companies.

Given below are its different reporting methods:

#1 - Financial Statement

This includes balance sheets, income statements, cash flow statements, and the statement of shareholders' equity. In addition, some companies with two or more units may have both standalone and consolidated financial statements. The statements reflect a firm's business performance.

#2 - Director's Report

In larger companies, the Board of Directors releases a report stating annual returns, board meetings, loans, investments, corporate affairs, highlights, and achievements. If a firm performs lousily, this report points out the cause behind underperformance.

#3 - Management Discussion and Analysis

Financial reporting and analysis provide information on the current position and performance of a company—in comparison to the competition. In addition, the report focuses on industry trends, future strategies, and future opportunities.

#4 - Notes to Accounts

It is mentioned as a footnote and informs about methods and accounting policies used by a company.

#5 - Auditors' Report

This report contains the independent opinion of the statutory auditor. It is the auditors who take the company's financials and accounting principles. 

#6 - Corporate Governance Report

The report catalogs the composition of the board of directors, directors' profiles, remuneration paid to top management, and compliance with statutory regulations. It is a communication between the board of directors, management, shareholders, and the creditors.

#7 - Prospectus

A company planning to issue an IPO releases a prospectus to promote the securities. It contains all the information about the company's financials, operations, management, and business goals.

Financial reports mirror business performance in terms of numerical figures. It aims to fulfill the following goals:

• Periodic Record Maintenance: All the financial transactions in a particular period is recorded in the company's financial statements.
• Financial Ratio Analysis: Financial reports are used to evaluate company financial ratios.
• Tax Purpose: Financial accounts and reports are formulated in accordance with Internal Revenue Service (IRS). This helps firms in filing tax returns.
• Reveal Company's Financial Condition: Investors, creditors, bankers, the public, regulatory agencies, and the government rely on financial data for decision-making.
• Disclose Future Strategies: Managements chart strategic roadmaps for the future of their companies. During economic slumps, the roadmap alleviates investor concerns by revealing strategies that can improve corporate position.
• Clear Internal Vision: In accounting, internal reporting is used by some companies to keep employees informed of operations and economic position.
• Statutory Compliance: Organizations are required to file reports with various agencies like ROC, government, and stock exchanges—on a quarterly or annual basis. Businesses are subject to statutory audits.
• Brings Transparency: Financial reports reveal how a company utilizes resources.

Let us see some financial reporting and analysis examples. Given below are financial statements of Verizon Communication Inc., for the year ending on December 31, 2020:

Income Statement:

Balance Sheet:

Cash Flow Statement:

Statement of Change in Equity:

This article has been a guide to what is Financial Reporting. We explain its meaning, analysis, types, standards, and directives using examples. You may learn more about Accounting from the following articles -

• Consolidated Financial Statement
• Off-Balance Sheet Financing
• Restructuring Cost