The 5 Ws of Financial Reporting
What Is Financial Reporting?
Financial reporting is the process of monitoring and recording essential financial data of a business for internal and external analysis. Such reports assess a business’s finances through its financial statements. This financial statement analysis determines whether the company is following all regulations of external institutions. Financial reporting also helps business owners with internal control and management.
What is included in financial reporting?
All transaction entries of a company must be recorded and analyzed accordingly, which makes up the core of a business’s financial statements. A financial statement reflects the performance of a company through its revenue generation and expenses and liabilities. No matter the types of financial reporting a business is doing, it will need to examine these financial statements,
- Income Statement: Also known as a profit and loss statement, demonstrates its overall performance through each period, showing its revenues and expenses.
- Balance Sheet: Also known as a statement of financial position, illustrates the financial position of the company at the end of an accounting period, including assets, liabilities, and equity.
- Cash Flow Statement: Primarily used to measure the company’s cash flow or net change in the cash balance and the increase and decrease in cash within a period.
- Statement of Retained Earnings: This financial statement, also known as an equity statement, outlines the company’s net income after they have paid out dividends to their shareholders over a specified time.
Who Are These Reports For?
The recipients of a business’s financial reports include the company’s management and external entities, such as investors, market analysts, creditors, and governmental agencies, like the Canada Revenue Agency (CRA). The CRA requires businesses to file income tax returns based on their financial standings, making financial reporting a necessity.
Such reports are also for public viewing. Businesses must make their dealings public to allow potential investors and possible shareholders to view their financial position. This is especially so of incorporated businesses or corporations. These publicly held corporations have extensive reporting protocols as all information must be provided to the public. If a business is looking for a line of credit, they must report their financial statements to creditors before receiving funds.
The International Financial Reporting Standards , IFRS for short, is an international organization that dictates the accounting standards of financial reporting for businesses around the world. They bring transparency, accountability and efficiency to the global financial market and set the reporting guidelines.
Overall, both public and private companies must produce their income statement, cash flow statement, and balance sheet for governmental bodies and public scrutiny, using the IFRS. Learn more about IFRS and GAAP.
Why Are Financial Reports Important?
The financial statement analysis done through financial reporting is an essential aspect of these reporting requirements. Filing and publicizing a business’s financial statements allows others to check the financial health of the company. Not only does it provide equal footing to investors and the like, but it is also a requirement by law from the Government of Canada.
When Should These Reports Be Created?
When it comes to reporting for internal purposes, as the business owner, you can dictate when these financial reports are made and analyzed. However, when it comes to external forces, outside institutions will govern when your business should create and publish its financial statements. Generally, financial reports are created annually, quarterly, or monthly.
There will be specific quarterly and annual deadlines surrounding the financial reporting for tax purposes. The CRA dictates businesses must file their returns at particular times of years.