Financial reporting can be a challenge for many companies, as it requires numerical accuracy and typically demands submission within a short time after the end of the period. Fortunately, the Fidugius Accounting & Reporting Manual provides a comprehensive solution for the finance community, with information on the requirements for precise accounting of transactions and timely submission of information, all available in one place. This manual not only ensures adherence to financial reporting regulations, but also offers insights into dependencies and relationships, enabling interactive communication with all involved parties.
Objective
Financial reporting is all about communicating financial information. Financial reports come in different forms, depending on the objective or information needs of the reader. There are two main categories: the internal and external users. The external users of a financial report are its stakeholders, like shareholders, suppliers, customers, (potential) employees, trade unions, etc. The internal user of a financial report is the company’s management.
The most common example of a financial report for an external user is a company’s financial statements, which are usually included in the company’s annual report. The financial statements include the balance sheet, income statement, statement of shareholders’ equity, cash flow statement and footnotes to explain the financial result of its activities during the period under review, such as their revenues or positions a company has as per the reporting date, e.g. inventories. Other examples of external financial reports are:
The most common examples of a financial report for the company’s management (internal users) are the monthly management reports. These usually also contain the income statement, the balance sheet and the cash flow statement, as well as detailed sales reports, trends, analysis and key performance indicators (KPIs). Other examples of internal financial reports are:
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The criteria for financial reporting
Regardless of the purpose of the financial report, the following criteria apply for preparing and distributing a financial report, of which the first two are most the important:
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- Reliability: Information in financial reports should be reliable, meaning that it should be free from errors or biase and should faithfully represent the financial position and performance of a company. Reliability in financial reporting is achieved through a combination of measures, including:
a. Accurate and Complete Recording: Financial information should be accurately and completely recorded in the accounting system. This includes all transactions and events that have occurred during the period in accordance with the company’s accounting policies and definitions.
b. Consistency: Financial reporting should be consistent over time, both within a reporting period and between reporting periods. This ensures that users of the financial statements can compare the company’s performance over time.
c. Disclosure: Companies should provide clear and comprehensive disclosures about their accounting policies, procedures and assumptions. This allows users of the financial statements to understand how the company’s financial results were derived.
d. Internal Controls: An effective system of internal controls is essential to ensure the reliability of financial reporting. This includes controls over the recording and processing of transactions, as well as controls over the preparation of financial statements.
e. Independent Auditing: Independent auditors may provide an objective and unbiased assessment of a financial report. Depending on the size of the company, an independent audit has to be conducted on the company’s annual financial statements. The auditor reviews the company’s accounting policies, procedures and controls, and tests the accuracy and completeness of the financial information.
2. Relevance: Information in financial reports should be relevant to users in making decisions. Relevant information is timely, has predictive or confirmatory value, and is material in nature. Even the most accurate and complete financial report has less value if it is out of date. Relevance in financial reporting is achieved through a combination of measures, including:
a. Defined Timelines: Companies should establish a clear timeline for financial reporting, including deadlines for preparing and reviewing financial reports. These timelines should be communicated effectively to all parties involved in the financial reporting process.
b. Effective Communication: Timely communication between different departments and stakeholders is essential for timely financial reporting. All parties involved in the financial reporting process should be aware of their roles and responsibilities and should communicate effectively to ensure that financial information is prepared and disclosed in a timely manner.
c. Robust Processes and Systems: An effective system of processes and systems should be in place to ensure that financial information is recorded and processed accurately and efficiently.
d. Proactive Planning: Proactive planning is essential for ensuring timely financial reporting. Companies should have a clear understanding of their reporting requirements and should plan ahead to ensure that all necessary information is available when it is needed.
e. Efficient Review and Approval: Review and approval processes should be efficient and streamlined to ensure that financial information can be reported in a timely manner.
3. Comparability: Financial reports should be comparable between entities and over time. This requires the use of consistent accounting policies and standards, and disclosure of changes in accounting policies or estimates.
4. Understandability: Financial reports should be presented in a clear and understandable manner, so that users can understand the information presented and make informed decisions.
5. Verifiability: Financial reports should be verifiable, i.e. they should be capable of being checked or confirmed by an independent party.
6. Materiality: Information in financial reports should be material, meaning that it is relevant and significant enough to affect the decisions of users.
7. Completeness: Financial reports should be complete, i.e. they should provide all information necessary for users to make informed decisions.
Achieving reliable and relevant reporting
The Fidugius Accounting & Reporting Manual provides a comprehensive solution for the finance community, with information on the requirements for precise accounting of transactions and timely submission of information, all available in one place. This manual not only ensures adherence to financial reporting regulations, but also offers insights into dependencies and relationships, and enables interactive communication with all parties involved.
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