Financial Reporting

Study Notes

Financial reporting refers to the process of preparing and presenting financial information to stakeholders about an organization's financial performance and position.
The primary purpose of financial reporting is to provide stakeholders with accurate and reliable information to make informed economic decisions.

Financial Statements: The primary components of financial reporting, which include:
- Balance Sheet: presents the organization's financial position at a specific point in time.
- Income Statement (Profit and Loss Statement): presents the organization's revenues and expenses over a specific period of time.
- Cash Flow Statement: presents the organization's inflows and outflows of cash over a specific period of time.
- Statement of Changes in Equity: presents the changes in the organization's equity over a specific period of time.
Notes to the Financial Statements: provide additional information and explanations to support the financial statements.
Management's Discussion and Analysis (MD&A): provides an overview of the organization's financial performance and position, as well as management's perspective on the organization's future prospects.

Generally Accepted Accounting Principles (GAAP): a set of rules and guidelines followed by companies in the United States.
International Financial Reporting Standards (IFRS): a set of standards followed by companies in many countries around the world.
Other frameworks: such as Financial Accounting Standards Board (FASB) and Securities and Exchange Commission (SEC) guidelines.

Investors: use financial reports to make investment decisions.
Creditors: use financial reports to assess creditworthiness.
Analysts: use financial reports to analyze and forecast a company's performance.
Regulators: use financial reports to monitor and regulate companies.
Management: use financial reports to make strategic decisions and evaluate performance.

Transparency: provides stakeholders with accurate and reliable information.
Accountability: holds management accountable for their actions.
Decision-making: enables stakeholders to make informed decisions.
Comparability: allows for comparison between companies.
Efficient allocation of resources: enables the efficient allocation of resources in the economy.

Financial reporting is the process of preparing and presenting financial information to stakeholders about an organization's financial performance and position to provide stakeholders with accurate and reliable information to make informed economic decisions.

Financial statements are the primary components of financial reporting, consisting of:
- Balance Sheet, which presents the organization's financial position at a specific point in time
- Income Statement (Profit and Loss Statement), which presents the organization's revenues and expenses over a specific period of time
- Cash Flow Statement, which presents the organization's inflows and outflows of cash over a specific period of time
- Statement of Changes in Equity, which presents the changes in the organization's equity over a specific period of time
Notes to the Financial Statements provide additional information and explanations to support the financial statements
Management's Discussion and Analysis (MD&A) provides an overview of the organization's financial performance and position, as well as management's perspective on the organization's future prospects

Generally Accepted Accounting Principles (GAAP) is a set of rules and guidelines followed by companies in the United States
International Financial Reporting Standards (IFRS) is a set of standards followed by companies in many countries around the world
Other frameworks include Financial Accounting Standards Board (FASB) and Securities and Exchange Commission (SEC) guidelines

Investors use financial reports to make investment decisions
Creditors use financial reports to assess creditworthiness
Analysts use financial reports to analyze and forecast a company's performance
Regulators use financial reports to monitor and regulate companies
Management uses financial reports to make strategic decisions and evaluate performance

Transparency provides stakeholders with accurate and reliable information
Accountability holds management accountable for their actions
Decision-making enables stakeholders to make informed decisions
Comparability allows for comparison between companies
Efficient allocation of resources enables the efficient allocation of resources in the economy