In any industry, whether manufacturing or service, we have multiple departments, which function day in day out to achieve organizational goals. The functioning of these departments may or may not be interdependent, but at the end of day they are linked together by one common thread – Accounting & Finance department. The accounting & financial aspects of each and every department are recorded and are reported to various stakeholders. There are two different types of reporting.
Financial reporting for various stakeholders & Management Reporting for internal Management of an organization. Both these reporting are important and are integral part of Accounting & reporting system of an organization. But considering the number of stakeholders involved and statutory & other regulatory requirements, Financial Reporting is very important and critical task of an organization. It is vital part of Corporate Governance. Let’s discuss about various aspects of Financial Reporting in following paragraphs.
Financial Reporting involves the disclosure of financial information to the various stakeholders about the financial performance and financial position of the organization over a specified period of time. These stakeholders include – investors, creditors, public, debt providers, governments & government agencies. In case of listed companies the frequency of financial reporting is quarterly & annual.Financial Reporting is usually considered as end product of Accounting. The typical components of financial reporting are:
The Government and the Institute of Chartered Accounts of India (ICAI) have issued various accounting standards & guidance notes which are applied for the purpose of financial reporting. This ensures uniformity across various diversified industries when they prepare & present their financial statements. Now let’s discuss about the objectives & purposes of financial reporting.
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.”
The following points sum up the objectives & purposes of financial reporting –
Now let’s discuss few aspects about importance of financial reporting.
The importance of financial reporting cannot be over emphasized. It is required by each and every stakeholder for multiple reasons & purposes. The following points highlights why financial reporting framework is important –
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.
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