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 purpose of financial reporting is to provide stakeholders with a clear and accurate picture of the financial health and performance of the organization, so that they can make informed decisions about their investment or other relationship with the company. Financial reporting is governed by Generally Accepted Accounting Principles (GAAP) in the United States, and International Financial Reporting Standards (IFRS) in many other countries.
BENEFITS OF FINANCIAL REPORTING :
- TRANSPARENCY AND ACCOUNTABILITY : Financial reporting provides a clear and transparent picture of a company's financial performance and position, allowing stakeholders to hold management accountable for their decisions and actions.
- DECISION-MAKING : Financial reports provide valuable information that can be used to make informed decisions, such as whether to invest in a company or extend credit to it.
- COMPLIANCE : Financial reporting helps organizations comply with legal and regulatory requirements, such as filing tax returns and issuing financial statements to shareholders.
- PLANNING AND FORECASTING : Financial reports can be used to develop budgets and forecast future financial performance, which can help organizations plan and make strategic decisions.
- BENCHMARKING : Financial reports can be used to compare a company's financial performance to that of its competitors, allowing management to identify areas where the company is performing well and areas where improvements can be made.
- STAKEHOLDER COMMUNICATION : Financial reports are a key means of communicating a company's financial performance and position to stakeholders, such as shareholders, creditors, and investors.
- IMPROVING EFFICIENCY AND EFFECTIVENESS : Financial reporting helps organizations to identify the areas where they are performing well and the areas that need improvement, allowing them to make changes that will increase efficiency and effectiveness.
USERS OF FINANCIAL REPORTS
The users of financial statements include present and potential investors, employees, lenders, suppliers and other trade creditors, customers, governments and their agencies and the public. They use financial statements in order to satisfy some of their information needs. These needs include the following :
I. INVESTORS
Investors use financial reports to evaluate the performance and potential of a company before deciding to invest in it. They look at factors such as revenue, profit, and assets to determine if the company is performing well and has room for growth.
II. CREDITORS
Creditors, such as banks and other lending institutions, use financial reports to evaluate a company's creditworthiness. They look at factors such as liquidity, solvency, and profitability to determine if a company has the ability to repay its debts.
III. MANAGEMENT
Management uses financial reports to evaluate the performance of the company and make decisions about future operations. They use the reports to identify areas of improvement and measure their progress towards achieving their goals.
IV. REGULATORS
Regulatory bodies, such as the Securities and Exchange Commission, use financial reports to ensure that companies are following accounting and reporting standards. They use the reports to identify any potential fraud or mismanagement.
V. EMPLOYEES
Employees, particularly those in upper management, use financial reports to evaluate the performance of the company and make decisions about future operations. They use the reports to identify areas of improvement and measure their progress towards achieving their goals.
VI. COMPETITORS
Competitors use financial reports to evaluate the performance and potential of a company. They look at factors such as revenue, profit, and assets to determine if the company is performing well and has room for growth.
VII. CUSTOMERS
Customers use financial reports to evaluate the performance and potential of a company. They look at factors such as revenue, profit, and assets to determine if the company is performing well and has room for growth.