Financial Reporting refers to the disclosure of financial information to
management and the public (if the company is publically traded) about how the
company is performing over a specific period of time.
Generally the financial report perform two primary purposes. First, it
helps management to engage in effective decision- making. The data disclosed in
report can help management discern the strengths and weaknesses of the company,
as well as its overall financial health. Second, financial reporting provides
vital information about the financial health and activities of the company to
In this assignment, we are going to describe in details about the
objectives and importance of financial report and the qualities that make the
financial report useful.
of Financial Report:
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
are the important objectives of making a financial report.
To Know Profitability of the Business:
statements are prepared to understand whether the company is earning adequate
profit and to know either the profits have gone up or down as compared to the
previous financial year, so that corrective measures can be taken in advance to
control the situation.
To Understand the Solvency:
also helps to understand whether the entity is capable to repay its short as
well as long term liabilities.
Estimating the Business Growth:
Estimate the growth of the business by preparing comparative and common size statements.
This is to measure the changes in profitability compared to last year or
whichever year taken as base year.
Judging Financial Strength of Business:
helps to understand whether the company is capable to acquire assets on its own
and/or whether the company can repay its outside liabilities.
(v) Comparing and Selecting Policies:
make a comparative study of the profitability of the company with other
companies engaged in the same field. And to select the most appropriate policy.
Forecasting and Preparing Budgets:
statement gives information about the least profitable areas of the business so
that the management can take corrective measures to overcome these short
comings. Financial statements help the management to look forward toward their
future plans and prepare budgets accordingly.
statements are prepared by the company to communicate it with its stake holders
to make them aware about their financial position.
Qualities that make a
Financial Report useful
good financial report is one which fulfills certain criteria and
characteristics. If a financial report doesn’t comply with these
characteristics then we cannot consider it as a perfect one. Some of those
qualities that makes a financial report useful are discussed below:
Project True Financial
information contained in the financial statements should provide true and
correct idea about the financial position of the concern. No material
information should be hidden while publishing these statements.
financial statements should be presented in a simple way so as to make the
stakeholders easily understand about the conditions. A person who is do not
have enough knowledge with accounting terminology should also be able to
understand the statements easily.
statements should comply with the objectives of the enterprise. This will be possible
if all the information are properly used while preparing the statements.
Unnecessary information should be avoided or if not it will be difficult to
find out which is relevant and which is not.
statements should be easily prepared. The size of the statements should not be
very large. The columns to be used for giving the information should provide
necessary information only. This will reduce the time consumed in preparing the
results of financial analysis should be in a way that can be compared with the previous
statements. The statement can also be made in such a way that it can be used
for comparison between other concerns of the same nature.
information should be analysed in such a way that similar data is presented at
the same place. A relationship can be established in similar type of
information. This will be helpful in analysis and interpretation of data.
good financial report presents information in brief. It will help the reader to
analyse it easily. On the other hand, if it given in details then it will
become difficult task to judge the working of the business.
financial reports should be prepared and submitted immediately at the end of
the financial year.