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.
GENERAL PURPOSE FINANCIAL REPORTS
General purpose financial reports (GPFRs) are financial statements that are intended to be used by a wide range of users, including investors, creditors, and other stakeholders. These financial statements typically include the balance sheet, income statement, cash flow statement, and statement of changes in equity.
The balance sheet, also known as the statement of financial position, shows a company's assets, liabilities, and equity at a specific point in time. The income statement, also known as the profit and loss statement, shows a company's revenues, expenses, and net income for a specific period of time, usually a quarter or a year. The cash flow statement shows a company's cash inflows and outflows from operating, investing, and financing activities for a specific period of time. The statement of changes in equity shows the changes in a company's equity over a specific period of time.
GPFRs are prepared in accordance with generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS). These standards ensure that financial statements are comparable, reliable, and relevant to the users who rely on them to make informed decisions.
GPFRs are typically audited by an independent auditor to provide assurance that the financial statements are free from material misstatement and are presented fairly in accordance with GAAP or IFRS.
Overall, GPFRs are financial statements that are intended to provide a comprehensive and accurate picture of a company's financial performance and position for the benefit of its stakeholders.
SPECIAL PURPOSE FINANCIAL REPORTS
Special Purpose Financial Reports are financial statements that are created for a specific purpose or audience. These reports are usually used for specific transactions or for specific groups of people, such as lenders or investors.
For example, a company may create a special purpose financial report for a bank or lender to show that they have the financial ability to repay a loan. This report would typically include information about the company's assets, liabilities, and cash flow.
Another example of a special purpose financial report is a report created for investors. This report would typically include information about the company's financial performance, such as revenue and profits, as well as information about the company's management team and strategic plans.
Special Purpose Financial Reports are typically created by the company's accounting or finance department and are reviewed by an independent auditor before they are released. These reports are usually not as detailed or comprehensive as a company's regular financial statements, but they do provide specific information that is relevant to the specific audience or purpose.
Overall, Special Purpose Financial Reports are important tools that companies use to provide specific financial information to specific groups of people, such as lenders or investors.
DIFFERENCE BETWEEN GENERAL AND SPECIAL PURPOSE FINANCIAL REPORTS
A GENERAL PURPOSE FINANCIAL REPORT is a report that is intended to be used by a wide range of users, including investors, creditors, and other stakeholders. These reports typically include a balance sheet, income statement, and statement of cash flows, as well as additional disclosures and notes that provide more detailed information about the company's financial performance and condition.
A SPECIAL PURPOSE FINANCIAL REPORT, on the other hand, is a report that is intended for a specific group of users or for a specific purpose. These reports may be tailored to meet the specific needs of the intended users and may not include all of the information that would be included in a general purpose financial report. Examples of special purpose financial reports include reports prepared for a specific project or business unit, or reports that are intended for use by a specific group of stakeholders such as a bank or government agency.