Financial reporting refers to the production of financial statements that report the financial state and performance of a business entity to relevant interested parties.
Financial Statements:
- An income statement looks at the earnings, costs and returns over an interval.
- The balance sheet, on the other hand, provides information on assets, liabilities and equity at a particular date or point in time.
- A cash flow statement essentially offers an explanation of how money is coming into and leaving a business.
Objectives of Financial Reporting:
- To provide information useful for decision making by investors and creditors.
- To demonstrate accountability and facilitate auditing/oversight by complying with regulatory requirements.
Example Usage:
By carefully reviewing trends in the quarterly financial reports, the venture capitalist identified growing working capital needs warranting a follow-on investment.
Significance:
Transparent financial reporting strengthens integrity and market confidence while enlightening stakeholders to make prudent decisions for allocating scarce resources.