What is Financial Reporting?

Financial reporting involves presenting financial information about a business or organisation to external stakeholders, such as investors, creditors, regulators, and the general public. It includes preparing and disseminating financial statements and related disclosures that provide insight into the entity's financial performance, position, and cash flows.

Financial reporting communicates the financial health and performance of a business to stakeholders, helping them make informed decisions about investing, lending, or otherwise engaging with the entity. It is governed by accounting standards and regulations that dictate the format, content, and timing of financial disclosures to ensure transparency and comparability across organizations and industries.

The primary financial statements in financial reporting comprise the income statement (profit and loss account), balance sheet (statement of financial position), and cash flow statement. These statements summarize the entity's revenues, expenses, net income or loss, assets, liabilities, shareholders' equity, and cash flows over a specific period.

Supplementary disclosures, footnotes, and management commentary may accompany the financial statements to provide further context and explanation. These disclosures cover significant accounting policies, contingent liabilities, related-party transactions, and other relevant information to enhance stakeholders' understanding of the financial statements.

Financial reporting is essential for corporate governance, accountability, and regulatory compliance. It fosters transparency, trust, and confidence in financial markets, facilitating capital allocation, investment decisions, and economic growth. By adhering to applicable accounting standards and regulations, organizations demonstrate their commitment to integrity and transparency in financial reporting.