Rose Anne R.

Datu
FM 2-1 Non ABM

What Is Financial Reporting?

Financial reporting refers to standard practices to give stakeholders an accurate depiction of a

company’s finances, including their revenues, expenses, profits, capital, and cash flow, as formal records
that provide in-depth insights into financial information.

What is the Purpose of Financial Reporting?

The objective of financial reporting is to track, analyses and report your business income. The
purpose of these reports is to examine resource usage, cash flow, business performance and the
financial health of the business. This helps you and your investors make informed decisions about how
to manage the business.

Characteristics of Financial Reporting

The Benefits of Financial Reporting

1. Improved debt management: As you know, debt can cripple the progress of any company,
regardless of sector. While there may be many different types of financial reporting concerning
purpose or software, almost all solutions will help you track your current assets divided by the
current liabilities on your balance sheet to help gauge your liquidity and manage your debts
accordingly.
2. Trend identification: Regardless of what area of financial activity you’re looking to track, this
kind of reporting will help you identify trends, both past and present, which will empower you
to tackle any potential weaknesses while helping you make improvements that will benefit the
overall health of your business.
3. Real-time tracking: By gaining access to centralized, real-time insights, you will be able to
make accurate, informed decisions swiftly, thereby avoiding any potential roadblocks while
maintaining your financial fluidity at all times.
4. Liabilities: Managing your liabilities is a critical part of your company’s ongoing financial health.
Business loans, credit lines, credit cards, and credit extended from vendors are all integral
liabilities to manage. By using a financial report template, if you're planning to apply for a
business expansion loan, you can explore financial statement data and determine if you need to
reduce existing liabilities before making an official application.
5. Progress and compliance: As the information served up by financial reporting software is
both accurate and robust, not only does access to this level of analytical reporting offer an
opportunity to improve your financial efficiency over time, but it will also ensure you remain
100% compliant – which is essential if you want your business to remain active.
 6. Cash flow: Big or small, an organization’s cash flow is essential to its ongoing financial health.
Working with a mix of detailed metrics and KPIs, it’s possible to drill down into cash flow in
relation to anticipated profit and liabilities, keeping your monetary movements secure and
fluent in the process.
7. Communication & data access: Any modern financial analysis report worth its salt is
accessible to and optimized for a multitude of devices. By gaining unlimited access to essential
financial insights and data, you can respond to challenges swiftly while improving internal
communication across the board. If everyone understands emerging trends and can share vital
financial data, your organization will become more efficient, more innovative, and safeguarded
against potential compliance issues or errors.

3 Different Ways of Financial Reporting And Analysis

 The GAAP (Generally Accepted Accounting Principles). This is the system used by the
United States, and almost no one else (just like the Imperial measurement system!).
 The IFRS (International Financial Reporting Standards). This system is utilized by more
than 110 countries around the world, including Canada, Australia, India, and China (although
China and India have ‘customized’ the IFRS in their own ways).
 The GDPR: (The General Data Protection Regulation): The GDPR came into effect on May
25, 2018, designed to modernize the laws that protect the personal information of individuals,
which means that if you're handling sensitive financial data of any kind, insights or metrics
(involving that of your investors, clients or partners), you must ensure that your reports are
compliant.

Why Is Financial Reporting Important?

A report from McKinsey suggests that leveraging data to create more proficient marketing
reports and to make more informed decisions can boost marketing productivity by 15 to 20%, which
translates to as much as $200 billion based on the average annual global marketing spend of $1 trillion
per year. If you apply that same logic to the financial sector or a finance department, it’s clear that
financial reporting tools could serve to benefit your business by giving you a more informed snapshot of
your activities.

The Importance of Financial Reporting and Analysis

Analyzing and understanding financial statements is key when a business needs to make an
important decision. Financial reports allow management to identify trends, potential roadblocks, and
actively track their financial performance in real-time.

https://www.datapine.com/blog/financial-reporting-and-analysis/
https://www.xero.com/us/glossary/financial-reporting/