corporate financial reportingppt 2003

7/31/2019 Corporate Financial ReportingPPT 2003

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ASHISH SIDDIQUI, MBA.M.COMAssistant Professor,

Sanskriti School of business(AICTE Approved) mobile9825773009

Compiled by Ashish Siddiqui MBA 1


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Financial reporting is the process of providing financial information inregards to a company's position, performance and flow of funds for a

specific period which are then provided to external users.

In other words financial reporting is the communication of financial

information useful for making investment, credit, and other businessdecisions (Wild, Shaw, & Chiappetta, 2009, p. 681) Such

communications include general purpose financial statements such as

income statements, balance sheets, equity reports, cash flow reports, and

notes to these statements.



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It is useful to existing and potential investors and creditors and other

users in making rational investment, credit, and similar decisions;

helps existing and potential investors and creditors and other user to

assess the amounts, timing, and uncertainty of prospective net cash

inflows to the enterprise;

identifies the economic resources of an enterprise, the claims to those

resources, and the effects that transactions, events, and circumstances

have on those resources

Financial reporting should provide information to the directors and

management to take various decision in the interest of its owners.The primary focus of financial reporting to provide information about

enterprises performance during the particular period provided by the

measure of earning and its components.



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There are two broad categories of interestedparties, or Financial reports users:

EXTERNAL USERS



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Investors (i.e., owners), who use accounting information to make buy, sell

or keep decisions related to shares, bonds, etc.

Creditors (i.e., suppliers, banks), who utilize accounting information to

make lending decisions.

Taxing authorities (i.e., Internal Revenue Service), who need accounting

information to determine a company's tax liabilities.

Customers, who may need accounting information to decide which

products to buy from which companies.



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Managers and Owners:For the smooth operation of the organization, the managers and ownersneed the financial reports essential to make business decisions. So as toprovide a more comprehensive view of the financial position of anorganization, financial analysis is performed with the information supplied

in the financial statements. The financial statement is used to formulatecontractual terms between the company and other organizations.

Employees:

The financial reports or the financial statements are of immense use to theemployees of the company for making collective bargaining agreements.Such statements are used for discussing matters of promotion, rankings and

salary hike



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Understandability

While financial statements can be somewhat complicated for the

uninitiated to understand, users must be able to understand the information

within them. This applies to the format/ layout of the statement, the terms

used in the statement and the policies, methods and assumptions utilized in

preparing the statement.

Users of financial statements are assumed to have sufficient knowledge to

study the information properly. Understandability ensures that a user

equipped with the basic knowledge can discern information pertaining to

the performance and financial position of an enterprise.



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RelevanceSince financial statements are for users to make economic decisions, the

information must be relevant to the decisions that those users have to

make. Once all items in a financial statement help users to assess historic

or future events, the information in the statement relevant to the users.

Whether the information affects the economic decisions of users

(materiality) and the nature of information affect relevance as well.

Materiality is one of the assumptions used in financial reporting that

contributes to relevance.



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Materiality

Information is material it its misstatement, i.e., either omission or

erroneous statement, could influence the decision of users taken on the

basis of the statements. Materiality depends on the size and nature of the

item or error, judged in the particular circumstances of its misstatement.

Materiality affects relevance.



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Reliability

In the context of accounting, "reliable" information is free from material

error (errors that affect the economic decisions of users) and bias. In other

words, a reliable financial statement must fairly and consistently present

information about the performance and financial position of an entity.

Users must have confidence in the financial statement, without it beingmisleading or deliberately constructed in a manner that presents the entity

in a favorable light. The main thrust of the auditing function is to reinforce

the reliability of information presented in financial statements. It has many

implication viz.. Faithful representation, substances over form,

neutrality, prudence ,completeness and comparability



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Faithful representation:

The requirement for consistency between claims made in financialstatements and economic reports and the actual financial state ofthe company.

Accounting reports should reflect the accurate, reliable andverifiable financial position including debt, cash flow andcompany performance.

substances over form : It is necessary to account for and presenttransactions in accordance to their substance and economic realityand not merely their legal from.

prudence: This refers to inclusion of caution and care to be taken in

reporting the data so that the assets or income are nor overstatedand liabilities or expenses are not understated.



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Neutrality: The information presented in the financial statement should be

free from bias that is the manner of presenting the data should be not be such

that it influence the decision taker.

Completeness The information contained in the financial statement should be

complete within the bound of materiality and cost.

Comparability: Comparable Financial report is useful because it tells us the

story of the business so we can compare it with prior periods and with other

companies in the industry, the country, the region or even the whole world.



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There are three components to a companys financial statements as part of

their annual report:

Income Statement How good the company is at making money

Balance Sheet How they're paying for their operations and their future growth

Cash Flow Statement What the company owns and owes



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corporate financial reportingppt 2003

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