Financial reporting

Financial reports are everywhere: a bill at a restaurant is a financial report, as are sales receipts and bank statements. In business, however, financial reporting refers to the financial statements that make up a company’s annual report and accounts. Compiled by accountants, they provide investors and lenders with information to assess a company’s profitability, and enable company managers, government, tax authorities, and other stakeholders to evaluate the business.

Types of financial reports

Financial reports take many forms and can contain a vast amount of information about a company’s finances, work, core business values,
performance, employees, and its compliance with local, logistical, domestic, and international laws. The most important financial report, or statement, is usually the annual report— essentially a collection of many other, smaller reports—which sums up how the business has performed in the last year. There is a multitude of laws, regulations, and guidelines governing what should be put into this report.

TYPES OF ACCOUNTING

There are seven widely recognized types of accounting:

❯ Financial Drawn up by accountants; used by investors, creditors, and management.

❯ Management Used by managers to control cash flow and budgets, and forecast sales.

❯ Governmental Also called public finance accounting; used by public sector for noncommercial accounting.

❯ Tax Dictates exact rules that companies and individuals must follow when
preparing and submitting tax returns.

❯ Forensic Engages in disputes and litigation, and in criminal investigations of fraud.

❯ Project Deals with a particular project; a useful aid for project management.

❯ Social and environmental Shows how a company makes a positive difference to the community and environment.

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THE ACCOUNTING CYCLE

The eight steps of the accounting cycle are used by nearly all accountants. The cycle helps by standardizing processes and makes sure that accounting jobs are performed correctly and in the same way and order for every activity.

The annual report

Financial statements usually appear in a company’s annual report and sum up its financial activities in a standardized way for different audiences to interpret quickly and clearly. These statements take diverse forms, and being able to deconstruct them is a vital skill for accountants and businesspeople, making it simple to see how well a business is performing and why.

$50 billion
the amount hidden via loans diguised as sales by

Lehman Brothers in 2008

Financial statements

❯ What’s in an annual report? A full record of company performance according to various criteria, as well as accounts.

❯ What are the statements? The main one is financial; others include sustainability, directors’ pay, and charitable donations

Who reads which statements? Sections are relevant to banks, shareholders, government, auditors, staff, and media.

❯ What do the notes mean? Main statements are annotated in detail.

❯ What are the rules? Accounting principles regulate financial reports.

❯ Which are the most important financial statements? Profit-and-loss statements, balance sheets, and cash-flow statements contain key facts.