What is Financial Reporting?
Financial Reporting is the use of financial statements to disclose the financial health of the company over a specific time. Financial reporting is also a legal requirement in several countries. The information that financial reporting provides is crucial for a company’s management team to make decisions on the company’s future, while also providing the necessary information for creditors and investors. Information that financial reports provides is the company’s revenue, expenses, profits, capital, and cashflow. Most companies will often use outsourced financial management services for their reporting. The reason why most companies outsource their financial reporting is because they understand how vital that financial reporting is to the business and how it must be done correctly. Now we are going to take a deeper dive into a few reasons why financial reporting is important for your company.
Financial statements provide important information that helps analyst and finance managers evaluate the financial importance of the company. These are just a few examples of why financial reporting is so important.
Tax Purposes
This is arguably the most important reason as to why financial reporting is so important. Businesses that generate a lot of profit must pay quite a lot in taxes. The Internal Revenue Agency uses the reports to make sure companies are paying taxes. Reporting helps reduce the tax burden and helps ensure that their resources are not depleted in a short time.
Showing Financial Condition
This is important to internal finance managers as well as potential investors. Finance managers use financial reporting to gauge the health of the company and will allow them to make quck decisions on the future state of the company. Similarly, investors can look at financial reports and understand how a company is doing so they can have visibility into the safety and profitability of their investments.
Decision-Making, Planning, and Forecasting
When there is a decision that a business must make, analyzing financial statements is crucial. When viewing these reports finance managers can look at the then, now, and potential future what ifs. They will use these financial reports to act quick or gauge situations that could potentially happen in the future to get an understanding on what changes need to be made.
Mitigate Errors
Companies can have early insight on errors that are made. Through the reconciliation process errors any errors that are made in accident or illegally will be detected. Having accurate financial reporting will catch those costly mistakes early in the process so that it can be addressed and corrected before it is too late.
These are just a few simple reasons as to why financial reporting is so important and why is has to been done accurately. Now we will take a look into what exactly does a financial report include.
What is included in a Financial Report?
- External Financial Statements (income statement, balance sheet, statement of shareholders’ equity, and statements of cash flow)
- Any notes that are related to these financial statements will also be included
- Information on quarterly earnings and other related information
- Quarterly as well as annual reports that are shared with stakeholders
- Financial Reports that are sent to governmental agencies including quarterly and annual reports to SEC otherwise know as Securities and Exchange Commission
Jump Start your Company’s Practice
An automated financial report offers internal and external stakeholders in your business the insight of the company’s overall health and performance. Automation gives a company the ability to mitigate risk associated with the creation of financial reports by using the automation of data consolidation through to financial reporting will allow you to provide your external stakeholders reports that will be accurate. Mitigated risk aligned with internal stakeholders’ abilities to conduct ad hoc analysis on main financial analysis reports will encourage your team to be proactive. Not only does this eliminate the manual time to complete financial reports but also save the company money by implementing FP&A automations.