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Financial reporting is only as strong as the people and processes behind it. Numbers can be technically correct and still tell different stories, depending on who prepared them, which policies they applied, and what guidance they had access to at the time.

For organisations with multiple entities, growing teams or complex accounting frameworks, this is a real and recurring problem. Closing cycles become firefighting exercises. Group Finance spends more time answering questions than reviewing results. And management receives information they cannot fully trust.

The root cause is usually not a lack of knowledge. It is a lack of structure.

THE OBJECTIVE OF FINANCIAL REPORTING

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:

  • A prospectus in case a company plans to sell securities to the public via an exchange.
  • An offering memorandum in case a company plans to sell securities in private placements.
  • A bank report to apply for a loan or to report on covenants.

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:

  • Budget, projections and forecasts to set objectives for the coming period(s).
  • Future cash flows to determine a company’s financial position.
  • Business cases to support decisions regarding business expansion or reduction.

WHAT GETS IN THE WAY OF CONSISTENT FINANCIAL REPORTING

In most organisations, financial reporting guidance exists in some form. There are accounting policies, process descriptions, templates and instructions. But they tend to be scattered; across shared drives, email threads, outdated PDFs and the heads of a handful of experienced people.

When that happens, the same transaction gets processed differently across teams. Reporting periods become less comparable. Corrections pile up during closing. And when someone leaves, part of the knowledge walks out the door with them.

The problem is not the policies. It is that they are not accessible, not connected, and not consistently applied.

WHAT RELIABLE FINANCIAL REPORTING ACTUALLY REQUIRES

Consistent financial reporting comes down to three things:

Everyone working from the same principles: the same accounting policies, the same definitions, the same booking procedures. Not a version from last year, not one that differs by entity.

Guidance that is easy to find at the moment it is needed, not buried in a document that requires three clicks and a search query to locate.

A framework that stays current, updated when regulations change, when new accounts are added, when processes evolve.

When these three things are in place, reporting becomes predictable. Closing cycles run more smoothly. Auditors find what they need. And management gets numbers they can base decisions on.

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:

    1. 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

Fidugius brings all financial reporting guidance together in one structured, searchable platform: The Financial Accounting & Reporting Manual.

It connects accounting policies, booking procedures, chart of accounts guidance, closing instructions and reporting calendars in a single knowledge environment. Finance teams across entities work from the same source, with clear guidance at the moment they need it.

The result is less interpretation, fewer corrections and more predictable reporting cycles, for Group Finance, local teams and management.

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