The Importance of Financial Reporting

Beyond the record creation process, accountants use the information gathered for analysis and interpretation. Accountants are usually concerned with understanding the meaning of the amounts they obtain, and they look for the relationship between business events and financial results.

In this sense, an essential part of this understanding financial statements is creating reports, especially for people who can make decisions about companies’ actions without accounting knowledge.

Financial Reporting Glossary:

Financial reporting is a set of documents that transcribes a personal or group reflection on a defined topic with the intention of favour decision-making. Accounting professionals capture everything observed about the company’s financial situation, structured in an understandable way for senior management, lawyers, banks, and even suppliers.

A Financial report structure includes a header, a summary of the company’s most relevant aspects, the report’s objective, identification of problems, analysis of the causes, recommendations, and conclusions. 

Header. Lists the company’s name and the financial statements with their correspondent period. The report’s title refers to the subject to be discussed, the date, and the place of the financial analysis.

Summary. Lists the activities carried out by the company, the commercial and legal characteristics, and its main short-term and long-term objectives. 

Objectives. Lists the purpose and the area of the company that will receive the financial report. 

Problems. Lists all of the issues that led to the report’s preparation; it is described in detail and summarized; generally, analyzing different indicators.

Causes. Clearly and concisely lists the problems identified in the previous point. It may include graphs to make the information clearer and precise. Financial Statements can be summarized, highlighting the most influential figures in the study carried out. 

Recommendations

Understanding the importance of Financial Reporting and analysis of Financial Statements provides a clear and brief description of what the company can do to solve the problems, quick findings, and suggested course of action to address the issues.

Financial reports should list all the names of the people who worked on the report’s preparation, their respective identification numbers, and their position in the organization. 

Initial research is vital to gather relevant data critical in meeting the company’s needs, maintaining order, breaking down relevant data as evidence, and following parameters to avoid misinterpretation of the report’s data.

Conclusions. Financial reporting must include a detailed analysis of the results obtained, compare the figures with the goals, financial projections, percentage of sales, and other ratios that explain each trend’s reason and the increase or decrease of state items. Consequently, a series of reasoning, such as liquidity, indebtedness, and profitability, should be included.

Financial reporting must have a specific target audience in mind, either the company staff or the general public. Their objective can be to evaluate company operations, detect weaknesses and strengths, and establish corrective measures, giving shareholders the possibility to decide whether to continue contributing or participating until verification of compliance or not with the taxes generated.

The report presented must comply with specific attributes that distinguish it from any other and support an adequate image of the company. These attributes are clear, clean, accessible terminology, well written, concrete, and well presented.

Finally, the Financial report’s presentation must be neat and legible, addressed to the intended audience, and include indexes to know the company’s reality. When placing information, it is vital to consider the most relevant evidence and have the professional ethics to carry out the report.

Written by: Andrea Diaz

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