AMITY LAW SCHOOL, KOLKATA

SUBJECT- BASIC CONCEPTS OF FINANCIAL ACCOUNTING

SUBJECT CODE- ACCT201

FACULTY- MS MADHUMITA DAS GUPTA

TOPIC- IMPORTANCE OF DISCLOSURE OF FINANCIAL

STATEMENTS

GROUP NUMBER-

GROUP MEMBERS-
 AAKANKSH GUPTA
 SULAGNA MOHANTI
 ROHINI SEN
 RITUKA MAJUMDAR

COURSE- BBA LLB (Hons)

SEMESTER- 1ST
 PROJECT DIVISIONS

 AAKANKSH GUPTA- first page, project divisions, what are

financial statements, types, formats and examples, features,
advantages and disadvantages.

 SULAGNA MOHANTI- significance of disclosure of financial

statements, what does financial statement say about the company
performance, effects of absence of financial statements.

 ROHINI SEN- literature review, research methodology, introduction,

how does financial statements help a company.

 RITUKA MAJUMDAR- how does financial statements affect the

growth and development of a company and attract special individuals
towards it, source documents, conclusion, bibliography.
 TABLE OF CONTENT

Contents
RESEARCH METHODOLOGY........................................................................................................................4
LITERATURE REVIEW:..................................................................................................................................5
INTRODUCTION........................................................................................................................................10
WHAT ARE FINANCIAL STATEMENTS?......................................................................................................11
TYPES OF FINANCIAL STATEMENTS..........................................................................................................13
SIGNIFICANCE OF FINANCIAL STATEMENTS AND ITS DISCLOSURE TO COMPANY AND SPECIFIC
INDIVIDUALS BOTH INSIDE AND OUTSIDE THE ORGANISATION...............................................................21
WHAT FINANCIAL STATEMENT SAY ABOUT THE COMPANY PERFORMANCE?.........................................23
HOW DOES FINANCIAL STATEMENT HELP A COMPANY TO PERFORM AND MAINTAIN REPUTATION.....25
WHAT WOULD HAPPEN IN ABSENCE OF FINANCIAL STATEMENTS AND ITS EFFECT ON THE COMPANY
AND OTHER INDIVIDUALS?.......................................................................................................................27
HOW DOES IT HELP IN THE GROWTH DEVELOPMENT OF THE COMPANY AND ATTRACT SPECIFIC
INDIVIDUALS TOWARS IT THROUGH THEM ?..........................................................................................29
HOW DOES IT HELP IN THGROWTH DEVELOPMENT OF THE COMPANY AND ATTRACT SPECIFIC
INDIVIDUALS TOWARS IT THROUGH THEM ?..........................................................................................30
SOURCE DOCUMENTS..............................................................................................................................31
Cash Flow of Wipro...................................................................................................................................35
CONCLUSION............................................................................................................................................39
 RESEARCH METHODOLOGY

This report is made thoroughly referring and studying accounting books by T.S. Grewal and D.K.
Goel and other previous research papers from internet. We referred to several posts and written vlogs
found in google.
 LITERATURE REVIEW:
THE NEED FOR FINANCIAL FOR FINANCIAL
STATEMENTS TO DISCLOSE TRUE BUSINESS
PERFORMANCE TO STAKEHOLDERS
By Wadesango N.* , Wadesango V.O.**
*University of Limpopo, Centre for Academic excellence,
**University of Limpopo, Faculty of Education,
South Africa

This research was made to determine the extent to which Financial Statements disclose true business
performance to stakeholders. The study comes to the conclusion that when assessing the level of
reliance that can be placed on financial statements to determine their ability to disclose business
performance, it is important to take into account management fraudulent reporting, relevance of
reports, reliability of information, and source of information.

1.FACTORS TO BE CONSIDERED WHEN DISCLOSING INFORMATION IN FINANCIAL

STATEMENT:-
 Regulatory requirement regarding disclosure of financial information: In order to report
manipulated profits and demonstrate appropriate changes to IFRSs, management may be
required to provide voluntary disclosures. By doing so, they can save regulatory expenses and
clarify areas of contention. The society is paying close attention to how business operations
affect the environment, and as a result, stakeholders are demanding from entities more and
qualitatively better environmental information. Voluntary disclosure, on the other hand, is the
provision of information beyond what is available in financial reports and is not stated as a
requirement by accounting rules: it is a disclosure made in excess of requirements.
 Audience to financial statements: Internal management bank officers or lrnderd are also
considered as stake holders. All stakeholders' interests are not taken into account by those in
charge of an organization's financial accounts. Since they solely report on financial data, only
the investors, creditors, and management are reaping significant benefits because they care
about the entity's financial situation.
 Preparation of financial statement: the features of financial statements, the classification rules
and regulations used for things, as well as the reporting entity's policies. In order to attract
investment corporates must make financial results available in accordance with IFRS's
criteria.
2. TO CARRY OUT A COST BENEFIT ANALYSIS ON THE IMPORTANCE OF FINANCIAL

STATEMENTS:-

 Cost and benefits of disclosing financial information: Every corporation is supposedly

required to disclose accounting information, and those disclosures must aid users in assessing

the effectiveness of the company's operations as well as its policies. Organizations that

disclose information about their human capital are said to reap benefits, particularly in terms

of building credibility and minimising information asymmetry. They also add that it improves

public and stakeholder perception of the organisation. The disclosure enhances stakeholders'

perceptions of the business, which may have a beneficial financial impact. The organisation

discloses material it believes is worthy of disclosure because it sees disclosure as a cost that

provides no advantage to the organisation. By doing this, the organisation is transferring

information that is crucial for other readers of financial statements.

 Relevance of Financial Statement: Periodically, financial statements are issued with the

intention of providing stakeholders with critical information. However, according to IASB,

annual statements also assist investors in evaluating management stewardship in addition to

serving as recommendations. The effectiveness of management in achieving organisational

objectives is evaluated using financial statements. The intended use of the financial

statements determines the relevance of the financial statements, and general reporting must

take into account the needs of all stakeholders. Benefits from financial statements must

outweigh the expense of preparing them in order for them to be meaningful.

 Significance of stakeholders groups: In terms of the financial accounts, financial analysts are

another crucial category. They perform a crucial function in the financial markets, one whose

relevance appears to have increased recently. They are seen as information intermediates who

collect, process, and distribute company information to debt lenders and investors. When it
 comes to investing and other types of decision-making, analysts are the ones who can

establish trust and confidence in financial accounts. When it comes to the sharing of

information, not all stakeholders in the corporation are treated equally; some groups are

consistently given preference over others.

3. TO COME UP WITH LEVEL OF RELIANCE THAT CAN BE PLACED ON FINANCIAL

STATEMENTS ON DISCLOSING BUSINESS PERFORMANCE:-

 Management fraudulent reporting: In terms of the financial accounts, financial analysts are

another crucial category. They perform a crucial function in the financial markets, one whose

relevance appears to have increased recently. They are seen as information intermediates who

collect, process, and distribute company information to debt lenders and investors. When it

comes to investing and other types of decision-making, analysts are the ones who can

establish trust and confidence in financial accounts. When it comes to the sharing of

information, not all stakeholders in the corporation are treated equally; some groups are

consistently given preference over others.

 Report relevant and reliable information: All organisations, whether private or public, are

required to be attentive and responsible in the current society. When evaluating an

organization's responsiveness, a variety of aspects are taken into account, including the

manner in which the service is delivered. The capacity to provide a breakdown of someone's

actions, regardless of the format or method, is said to demonstrate a high level of

accountability. authority is transmitted from one person to another along with the authority.

Information must be reported in a timely manner for it to be relevant and reliable. In the

organization, there is a trend toward delaying the timing for financial information reporting,

which results in decisions that are made without sufficient information.

  Source of information: A useful reporting instrument that complements and exemplifies the

idea of integrated reporting would be presented throughout the presentation of the traditional

determinant of value added in the purported value added statement. They argue that the value

added statement should and may be one of the primary reporting tools for integrated

reporting, and they suggest how integrated reports can be put together to best meet the

information needs of both internal and external stakeholders. When determining the accuracy

of I the information's source is more significant.

4.COMING UP WITH FINANCIAL INFORMATION NEEDS FOR DIFERENT

STAKEHOLDERS:-

 Provide informational needs regarding non financial issues: The business sector has used new

information and communication technologies to increase the transparency of financial

information as a result of the growing demand for information. Financial transactions in the

public and private sectors must be transparent in order to facilitate accountability and inform

the public of the decision-making process.

 Provide information needs for employees: They go on to say that employees must now

assume responsibility for their investments and their future due to the complexity of the

business environment. Employees are expected to be capable of managing their own affairs

and must have access to all required information.

 Providing information needs for society and public at large: However, there has been a

connection made between environmental issues and the company's overall performance. The

other benefit claimed to be reachable is increased quality as a result of participation in

environmental reporting. The implementation of environmental accounting, product quality,

and the growing stakeholder demand for information disclosure that mimics relationships
 between organisations and the environment are important elements in improving quality

performances.

5. EFFECTS OF NEGLECTING OTHER STAKEHOLDERS WHEN PRESENTING

INFORMATION:-

 Loss of trust and confidence in financial statements: Accounting scandals, in which

organisations created financial statements falsely, as well as the auditor's release of a clean

report, erode stakeholders' faith. When management fraud occurs, stakeholders are concerned

about the independence of the auditors.

 Organisational reputation: It is claimed that additional information not included in financial

statements leads to voluntary disclosure to improve stakeholder relationships with the

organisation. The handling of stakeholders in the context in which an entity operates for its

long-term existence is reflected in the stakeholder theory. Additionally, voluntary reporting

has been suggested as a risk management tool for a business.

 INTRODUCTION

Financial statements are written records that convey the business activities and the financial
performance of a company. Financial statement disclosures are further details that are appended to a
financial statement. These addenda offer information to the public, employees, investors, and
governing authorities. Disclosures, which share non-financial information to set the stage for the
financials, appear at the end of a financial statement. The best judgments may be made using this
information by lenders, investors, and other parties. Financial statement disclosures can occasionally
include additional data, but they frequently consist of narrative. These might outline adjustments to
operations or strategy, convey good or bad news, or reveal information about the organisational
structure and chain of command.
 WHAT ARE FINANCIAL STATEMENTS?

Financial statements are written documents that transmit the financial pursuits and conditions of a
trading concern or entity and comprise of 4 major elements. Financial statements are usually meant
to furnish the financial data of the enterprise in question as precisely and concisely as feasible for
both the enterprise and for the readers.
Financial statements for trading concern normally comprise balance sheets, statements of retained
earnings, cash flows and income statements but might need further elucidated acknowledgements
relying upon the appropriate accounting groundwork. These statements are audited by government
firms, accountants, agencies, etc. to make sure the certainty and for tax, financing or investing
intentions.

NATURE/FEATURES OF FINANCIAL STATEMENTS

Financial statements are outlined utilising the facts that are associated with the events, which are
documented sequentially. We have to document all these data in monetary terms. Later, we have to
process them utilising all pertinent standards and decrees.
Finally, we can utilise all this information to create financial statements. To put it in other words, the
chronologically documented facts regarding occurrences conveyed in monetary terms for a certain
time frame are the foundation for the outlining of journal financial statements which acknowledge
the financial position as on a particular date and the financial outcomes acquired during a period.
The American Institute of Certified Public Accountants (AICPA) states the nature of financial
statements as, “the statements outlined for the intention of declaring a periodical analysis of the
report on development by the management and in accordance with the condition of investment in the
trade and the outcomes accomplished during the period under analysis. They mirror a combination of
accounting principles, personal judgements and documented facts”.
Grounded on this, the nature of financial statements relies upon the below-mentioned following
points:

 Recorded facts: We have to initially document certainties in monetary terms to establish

financial statements. For this, we have to explain for figures of accounts like cash, trade
receivables, fixed assets, etc.,
 Accounting conventions: Accounting Standards determine specific conventions that are
pertinent in the procedure of accounting. We have to apply these conventions while outlining
the financial statements. For instance, relying upon whichever is lower, estimation of
inventory at cost price or market price.
 Postulates: Postulates play a huge role in the process of preparing financial statements. They
are assumptions that we usually make in accounting. For instance, the going concern
postulate assumes a trading concern will exist for a long time. Hence, we treat assets on a
historical cost basis.
  Personal judgements: Personal judgements and opinions occupy a huge role in the outlining
of financial statements. Hence, we have to depend on our own approximates while computing
depreciation.

OBJECTIVES OF FINANCIAL STATEMENTS

Financial statements are the fundamental sources of data to the shareholders and other external
parties for comprehending the profitability and financial position of any trading concern. They
furnish data about the outcomes of the trading concern during a particular time frame in terms of
assets and liabilities, which furnish the foundation for taking decisions.
Hence, the primary goal of financial statements is to help end-users in their decision-making. The
particular objectives comprise the following:

 Financial statements depict the precise condition of an enterprise’s economic assets and
liabilities. External stakeholders, like investors and authorities, do not have this data.
 They assist in anticipating the degree of an enterprise’s capability to earn profits. Investors
and shareholders can utilise this information to ascertain their financial decisions.
 Financial statements of an enterprise show the efficiency of its management. How well an
enterprise is functioning relies upon its profitability, which these statements depict.
 They assist readers of these statements in being aware of the accounting strategies used in
them. This assists in comprehending the statements more predominantly.
 These statements also furnish data that is associated with the enterprise’s cash flows.
Creditors and investors can utilise this information to anticipate the enterprise’s cash
requisites and liquidity.
 Finally, financial statements elucidate the social effect of businesses. This is due to how the
enterprise’s external aspects influence its operations.
 TYPES OF FINANCIAL STATEMENTS

There are four types of financial statements that are required to be prepared by an entity. These
statements are:
Income statement,
Balance Sheet or Statement of financial position,
Statement of cash flow,
Noted (disclosure) to financial statements.
1. Income statement
Income statement of an organisation or business entity is the financial statement which contains
financial information about the three important components, which are revenues, profit or loss and
expenses incurred during the accounting period.
The three components of income statement are explained as follows:
Revenues: It refers to the sales of goods and services that the business generates during the current
accounting period. Revenues can be obtained from both cash and credit sales.
Profit or Loss: Profit or loss is the net income which is obtained by deducting the expenses from the
revenues. Profit will happen if revenues are more than expenses and loss will occur if expenses are
more than revenue.
Expenses: Expenses are the cost of operations that an organisation incurs for running day to day
operations. They can be administrative expenses like salaries, depreciation etc.

BLANK FORMAT OF INCOME STATEMENT: -

Company Name
Income Statement
For the period ______

Particulars Amount Amount

(Rs.) (Rs.)

Revenues Xxx
Service revenue/revenue from sale of
goods/royalty/rental/interest income/commission
income etc.

Expenses
Salary expense xxx
Rent expense xxx
Depreciation expenses xxx
Office expenses xxx
Bank charges xxx
Interest expense xxx

Total Expenses Xxx

Profit before taxes (Revenues – Expenses) Xxx

Tax Expense Xxx

Net Profit or Net Income (Profit before taxes – Xxx

taxes)

INCOME STATEMENT EXAMPLE: -

Below is the income statement example of Max Associates, who are into legal consultancy service.

Max Associates
Income Statement
For the period 1-4-2019 to 31-3-2020

Particulars Amount Amount

(Rs.) (Rs.)

Revenues
Revenue from legal consultancy fee 25,00,000
Expenses
Salary expense 2,00,000
Rent expense 1,80,000
Depreciation expenses 30,000
Office expenses 20,000
Bank charges 12,000
Interest expense 8000

Total Expenses 4,50,000

Profit before taxes (Revenues – Expenses) 20,50,000

Tax Expense 3,00,000

Net Profit or Net Income (Profit before taxes – taxes) 17,50,000

2. Balance sheet
A balance sheet is known as a statement of financial position as it shows the position of assets,
liabilities and equity at the end of an accounting period. The net worth of a business can be
determined by deducting the liabilities from the assets.
If the users of financial information are looking for information regarding the financial position of
the company, a balance sheet is the most appropriate statement which will present the necessary
information.
Components of a balance sheet are assets, liabilities and equity. These are described below:
a. Assets: Assets are resources that are owned by the company both legally and economically. There
are two main classes of assets. They are current and non-current assets.
Current assets of a company are those assets that are going to be utilised in the current accounting
period. The examples of current assets are cash, marketable securities, cash equivalent etc.
Non-current assets comprise of those assets that cannot be utilised completely in the current
accounting period and are therefore used across several accounting periods. It consists of tangible
and intangible assets including machinery, building, land, computer equipment, vehicles etc.
Assets are equal to the sum of liabilities and equity of the organisation.
b. Liabilities: Liabilities are obligations of a company which they owe to other businesses or
individuals. It includes interests payable, loans, taxes etc. Liabilities are of two categories current
liabilities and non-current liabilities.
Current liabilities are due within a year that means the organisation has to pay the dues within that
accounting year only. Non-current liabilities, on the other hand, are obligations that have a longer
period of repayment, which is more than twelve months. For example, a long term lease which is due
in more than twelve months.
c. Equity: Equity is defined as the difference between assets and liabilities. The examples of equity
are retained earnings, share capital. Equity can be calculated by subtracting assets from liabilities.

BLANK FORMAT OF A BALANCE SHEET

EXAMPLE OF A BALANCE SHEET

3. Statement of Cash Flow

Cash flow statement reveals the movement of cash in an organisation. It comprises cash inflows and
outflows. Cash flow can be classified into three activities which are operating activities, investing
activities and financing activities.

BLANK FORMAT OF A CASH FLOW STATEMENT

EXAMPLE OF A CASH FLOW STATEMENT

4. Notes to Accounts
Notes to accounts or notes to financial statements are supporting piece of information that is
provided along with final accounts of a company. Notes are required to be provided as per the law
which can include details regarding reserves, provisions, inventory, depreciation, share capital etc.
The notes to accounts help users of accounting information in understanding the current financial
position of the business and also helps in estimating its future performance.
It helps the auditors at the time of auditing of financial statements to determine if the accounting
policies are properly implemented and are reflected in the statements of the company.

ADVANTAGES OF FINANCIAL STATEMENTS

1.Review of cash flow: It shows the financial solvency and the ability of the company to pay
liabilities to pay its liabilities. The statement of cash flow statement breaks the statement into
operating, investing, and financial parts. A cash flow review helps us understand whether the
business is operating under a cyclical revenue stream structure or a consistent revenue model. This
also helps the business maintain and keep the expenditure the business in line with the revenue
model it operates.

2.Review of liability: Financial statements presents the short- and long-term obligations of the
business. If the owner wants to expand his business, he must look at the statements of financial
position and deduce the logic as to whether he should reduce existing liabilities to apply for further
capital expansion. Lenders look at the financial statements and determine business prospects based
on revenues, assets, and liabilities.
3.Review of inventory and its movement: The levels of opening and closing stock as a percentage of
purchase and sales, along with the changes and movements in the levels of stock throughout the year,
show the business’s ability and nature. It shows whether the goods are in demand, fast-moving or
slow-moving, or change in the trend of sales, and so on. When the goods are slow-moving compared
to industry, it is considered a negative for the business prospect and growth.

4.Identification of trends: The business owner should prepare and compare financial statements over
various periods to identify business trends. This helps the business know what products are selling
well, what segments are growing well, and which segment of business needs further review and re-
investment or complete exit at once. Trends are the gospel in the performance of the business.
Identifying trends is, therefore, a necessity for the business to sustain growth and achieve higher
profits.

5.Preparation of budget: Every business must have a vision. To prepare a vision, the business must
have defined goals and objectives. The objective of financial statements is to prepare a blueprint for
the future by analysing the past financial statements already prepared and audited. Budgets help to
keep the expenses in line with income and sales. The budgets are forecasted using prepared financial
statements.

DISADVANTAGES OF FINANCIAL STATEMENTS

1.Financial Statements Are Derived from Historical Costs
Transactions are initially recorded at their cost. This is a concern when reviewing the balance
sheet, where the values of assets and liabilities may change over time. Some items, such as
marketable securities, are altered to match changes in their market values, but other items, such
as fixed assets, do not change. Thus, the balance sheet could be misleading if a large part of the
amount presented is based on historical costs.
2.Financial Statements Are Not Adjusted for Inflation
If the inflation rate is relatively high, the amounts associated with assets and liabilities in the
balance sheet will appear inordinately low, since they are not being adjusted for inflation. This
mostly applies to long-term assets.
Financial Statements Do Not Contain Some Intangible Assets
Many intangible assets are not recorded as assets. Instead, any expenditures made to create an
intangible asset are immediately charged to expense. This policy can drastically underestimate
the value of a business, especially one that has spent a large amount to build up a brand image
or to develop new products. It is a particular problem for start-up companies that have created
intellectual property, but which have so far generated minimal sales.
3.Financial Statements Only Cover a Specific Period of Time
A user of financial statements can gain an incorrect view of the financial results or cash flows
of a business by only looking at one reporting period. Any one period may vary from the normal
operating results of a business, perhaps due to a sudden spike in sales or seasonality effects. It is
better to view a large number of consecutive financial statements to gain a better view of
ongoing results.
4.Financial Statements May Not Be Comparable
If a user wants to compare the results of different companies, their financial statements are not
always comparable, because the entities use different accounting practices. These issues can be
located by examining the disclosures that accompany the financial statements.
5.Financial Statements Could be Wrong Due to Fraud
The management team of a company may deliberately skew the results presented. This situation
can arise when there is undue pressure to report excellent results, such as when a bonus plan
calls for pay-outs only if the reported sales level increases. One might suspect the presence of
this issue when the reported results spike to a level exceeding the industry norm, or well above
a company’s historical trend line of reported results.
6.Financial Statements Do Not Cover Non-Financial Issues
The financial statements do not address non-financial issues, such as the environmental
attentiveness of a company's operations, or how well it works with the local community. A
business reporting excellent financial results might be a failure in these other areas.
7.Financial Statements May Not Have Been Verified
If the financial statements have not been audited, this means that no one has examined the
accounting policies, practices, and controls of the issuer to ensure that it has created accurate
financial statements. An audit opinion that accompanies the financial statements is evidence of
such a review.
8.Financial Statements Have No Predictive Value
The information in a set of financial statements provides information about either historical
results or the financial status of a business as of a specific date. The statements do not
necessarily provide any value in predicting what will happen in the future. For example, a
business could report excellent results in one month, and no sales at all in the next month,
because a contract on which it was relying has ended.
Financial statements are normally quite useful documents, but it can pay to be aware of the
preceding issues before relying on them too much.
 SIGNIFICANCE OF FINANCIAL STATEMENTS
AND ITS DISCLOSURE TO COMPANY AND
SPECIFIC INDIVIDUALS BOTH INSIDE AND
OUTSIDE THE ORGANISATION

Significance of Financial Statements: Financial Statements are important since they serve to
persuade the various interests of different types of people, such as creditors, the general public,
management, etc.

 Importance to Management: The administration of modern trade concerns involves

scientific and strategic access due to the growth in size and complexity of factors impacting
commercial activities. For the purposes, the management team need current, accurate, and
rigorous financial data. Financial statements help managers to understand the status,
prospects, and position of the company's industry equivalent.

 Importance to the Shareholders: For corporations, management is separate from control.

Shareholders are not permitted to participate in daily corporate operations. However, the
results of these efforts ought to be presented to shareholders in the form of financial
statements at the annual general body meeting.

Financial Statement Disclosures: A financial statement's disclosures, which share non-

financial information to set the financials in context, come towards the conclusion. Lenders,
investors, and other parties may make the best choices possible with the use of this information.
Financial statement disclosures can occasionally include extra data, although they frequently consist
of narrative. These might include updates on operations or strategy, positive or bad news, or
information on the organizational chart and chain of command.

 Environmental Reporting and Social Disclosures: Although each country has its own
distinct requirements, companies in the US, Canada, and the EU are all required to report
environmental risks and consequences generated by their activities. Companies with more
than 500 workers, especially in the EU, are also obligated to declare their diversity initiatives,
employee treatment, and related information. Contrarily, it's possible that firms in North
America are merely obligated to report threats to profitability.
 Operations Insights: Events that have place in between financial statements, such as
bankruptcy or contract loss, frequently need to be conveyed in a narrative. It may also be
required to indicate significant changes to the organizational structure or operational
procedures.

 Conflicts of Interest: The link between the brokerage and the company in issue must be
made explicit, especially when a brokerage firm has generated a financial statement. It's not
always a warning sign if the broker has performed financial services for the company or if
analysts or other firm members hold company stock. Outside investors, for example, ought to
be informed so they may conduct their own examination of the financial statements in their
own unique context.

 Legal Disclaimers: Other disclaimers will probably be included with every financial
statement. These include statements on whether the report contains predictions that might not
correspond to actual future events. Additionally, it should be made clear whether or not the
data in the report has been thoroughly checked for accuracy and whether or not it is intended
to serve as a guide for making investment decisions.
WHAT FINANCIAL STATEMENT SAY ABOUT THE
COMPANY PERFORMANCE?

Financial performance is a gauge of how well a company can utilize resources from its main line of
business and create income. The phrase is also used as a broad indicator of a company's long-term
financial stability.
Financial performance is compared by analysts and investors between similar companies in the same
industry or between industries or sectors as a whole.
Investors can learn information about a company's general health from its financial performance. It
provides a quick picture of the country's economic situation and managerial performance.
Form 10-K, which all publicly traded firms are required to release yearly, is a significant document
in reporting company financial performance.
The balance sheet, the income statement, and the statement of cash flows are financial statements
that are used to assess overall financial performance.
Indicators of financial success are quantitative criteria used to gauge a company's performance.
No one metric should be used to assess a company's financial success.

Understanding Financial Performance:

Trade creditors, bondholders, investors, workers, and management are just a few of the diverse
parties who make up a corporation. Each group is interested in keeping track of a company's
financial results. How well a company generates revenue, manages its assets, liabilities, and the
financial interests of its stakeholders and stockholders is determined by its financial performance.

Financial Statements: The balance sheet, income statement, and cash flow statement are the
three financial statements that are included in the 10K.

 Balance Sheet: The balance sheet is a snapshot of an organization's financial situation as of a

specific date. It gives a general summary of the company's asset and liability management.
On the balance sheet, analysts can learn more about long-term vs. short-term debt.
Additionally, they can learn what kinds of assets the company possesses and what proportion
of those assets are financed by liabilities as opposed to stockholder equity.
  Income Statement: An overview of activities for the whole year is provided by the income
statement. Sales or revenues are the first item on the income statement, while net income is
the last. The income statement, which is also known as the profit and loss statement, includes
the gross profit margin, cost of goods sold, operating profit margin, and net profit margin.
Additionally, it offers a summary of the number of outstanding shares and a comparison to
the previous year's performance.

 Cash Flow Statement: The income statement and balance sheet are combined to create the
cash flow statement. Because it offers a reconciliation between net income and cash flow, the
cash flow statement is considered by some analysts to be the most significant financial
statement. Here, researchers can see how much the business spent on dividends, capital
expenditures, and stock repurchases. The source and purposes of cash flow from operations,
investment, and borrowing are also provided.

Numbers serve as the foundation for a company's financial performance. However, in the end, it
leaves a lasting image of the business and its stability. Any serious investor who wants to
comprehend and evaluate a company fairly must do a financial analysis of the financial statements of
the firm, as detailed in annual reports and Form K-10s.
It's crucial to understand, though, that financial success only ever represents the past and is never a
precise predictor of the future. It also doesn't exist by itself. When assessing a company's financial
success, one should constantly take into account the company's history, the industry as a whole, and
other, comparable firms.
 HOW DOES FINANCIAL STATEMENT HELP A
COMPANY TO PERFORM AND MAINTAIN
REPUTATION

Organizations can gain from financial statement analysis in many different ways. It gives internal
and external stakeholders the chance to make well-informed investment decisions. In addition,
financial statement analysis offers lending institutions a frank assessment of a company's financial
standing, which aids in lending decisions. Financial statement analysis also aids in issues of
corporate governance because top executives and other members of management depend on
accounting to accurately portray the results of their decisions.
Few ways how Financial Statement help are:
 Know that decisions should be based on more than just the numbers on financial statements
to maintain objectivity.
 Prevent acquiring a fake sense of security. Accounting professionals should also use in-the-
moment observations of business activity in addition to financial documents to determine
whether a corporation is steady and lucrative. For instance, a declining inventory that is
difficult to replenish could eventually lead to significant problems.
 Financial statements give potential lenders a picture of the company, and they can use this
information to either restrict credit in order to begin a recovery or to extend additional credit
for business expansion,

How it helps to maintain reputation:

i. Towards bank: Financial statements have the advantage of reflecting a variety of financial
hazards and alerting banks to them so they can be avoided, such as credit risk and interest rate
risk. The most important and established line of business for banks is credit capital, which
accounts for a sizable portion of total assets in financial statements and is the principal source
of income for banks.
ii. Towards public: Making wise investment decisions requires an understanding of corporate
financial statements and the disclosures that go along with them. The accuracy of financial
statements and disclosures directly affects the health of the global financial markets and the
millions of investors who place their present and future financial well-being in those markets.
Thus, the quality of the information determines how the world's financial markets function.
iii. Toward investors: Investors rely on financial data to help them make investing decisions.
Investors frequently assess a company's growth potential, riskiness, and long-term viability of
its business model using financial disclosures, for instance. Additionally, these evaluations
give investors the information they need to value particular assets and manage their
portfolios. When considered as a whole, the relative efficacy and efficiency of financial
markets is influenced by the quality of investors' pricing and capital allocation decisions.
Simply put, the prices of securities and even the amounts of capital allocated to a firm are less
 likely to represent the company's actual economic condition when financial disclosures do
not portray the economic narrative as it truly is.
iv. Towards government: Government agencies require publicly available financial data for VAT
and corporate taxes purposes. The government makes decisions, and the success of all
companies operating in different economic sectors has an impact on their long-term economic
objectives. It also helps government to keep a track whether the company or business entity is
paying all the taxes or not. It helps in keeping the business in law.
 WHAT WOULD HAPPEN IN ABSENCE OF
FINANCIAL STATEMENTS AND ITS EFFECT ON
THE COMPANY AND OTHER INDIVIDUALS?

Since the firm issues financial statements, the information an analyst receives is obviously restricted
to what the corporation wants to disclose and how it intends to modify the data.

 Historical Costs: Historical expenses are used in financial reporting. All transactions are
documented at historical cost; the financial statements do not include the current value of the
company's assets and liabilities since such values fluctuate over time and are influenced by
market variables. As a result, the financial statements may be deceptive if any items are
included that are based on prior expenses and the firm has not updated them.

 Inflation Adjustments: The company's assets and liabilities are not adjusted for inflation.
Since the goods in the reports will be reported at lower costs when inflation is really strong,
the readers won't receive much information from them.

 Personal Judgements: Personal judgements form the basis of the financial accounts. The
accounting standard that is applied by the individual or group of individuals preparing the
assets and liabilities determines their worth. Depreciation procedures, asset amortization, etc.,
are subject to the individual judgement of the person utilizing the assets. As a result, all such
procedures have limitations and cannot be disclosed in financial reports.

 Specific Time Period Reporting: Since the financial statements are based on a certain time
period, they may have an impact on seasonality or an abrupt upswing or slump in sales. Since
numerous factors impact a company's success, which is detailed in the financial reports, it is
difficult to compare one period to another. As a result, when analysing the reports based on
just one reporting period, a reader may make mistakes. A more accurate picture of the
company's performance can be obtained by carefully examining reports from various time
periods.

 Intangible Assets: The company's intangible assets are not included on the balance sheet.
Intangible assets, such as brand value and the company's reputation built through time, which
aid in increasing sales, are excluded from the balance sheet, for instance. However, intangible
assets are noted on the financial accounts if the corporation has acquired them. In general, it
 is a challenge for start-ups that, based on domain expertise, produce a significant amount of
intellectual property, but since they have not been in operation for very long, they are unable
to generate sufficient revenues. As a result, neither their intangible assets nor their sales are
included on the financial accounts.

 Comparability: Analysts and investors frequently compare a company's performance to that

of other businesses in the same industry, although these comparisons are not always accurate.
Comparability can be challenging due to a variety of factors, including the accounting
procedures used, valuation, and individual judgments made by various people in various
Companies.

 Fraudulent Practices: The financial statements might be fraudulent. There are several
reasons for engaging in fraudulent behaviour and distorting the company's financial
outcomes. For instance, if the promoters want to increase the share price or the management
wants to receive a bonus, they frequently use dishonest accounting techniques, phony sales,
etc. to demonstrate the company's success. Analysts can see them if the firm performs better
than average compared to its sector.
A company that doesn’t provide a balance sheet when publishing its financial statements doesn’t
abide by accounting rules -- the most prominent of which include generally accepted accounting
principles (GAAP), international financial reporting standards (IFRS) and edicts from the U.S.
Securities and Exchange Commission (SEC). Financial noncompliance also triggers the wrath of
investors and business partners as diverse as service providers, lenders, customers and vendors.
 HOW DOES IT HELP IN THE GROWTH
DEVELOPMENT OF THE COMPANY AND
ATTRACT SPECIFIC INDIVIDUALS TOWARS IT
THROUGH THEM ?

An financial disclosure is a statement that recognizes the financial policies of a firm or a business
organization. This statement shows all the expenses and revenues over a period of time. The
accounting policies statement is disclosed for all the present investors and potential investors in a
business organization. This policies are strategies and methods of accounting which are followed by
the firm or organization. The financial statement comprises of balance sheet, income statement and
cash flow of a business organization.

In financial and investment world, disclosures of disclosure statement, all the relevant

information about the firm are required to be issued by the business corporation which can influence
potential investors through Annual Reports. This reports helps the investors to make informed
decisions and choose stocks or bonds which suits their investment needs and investment portfolio.
Many countries have developed laws and established guidelines on how and when this are to be
made and published.
 HOW DOES IT HELP IN THGROWTH
DEVELOPMENT OF THE COMPANY AND
ATTRACT SPECIFIC INDIVIDUALS TOWARS IT
THROUGH THEM ?

An financial disclosure is a statement that recognizes the financial policies of a firm or a business
organization.This statement shows all the expenses and revenues over a period of time.The
accounting policies statement is disclosed for all the present investors and potential investors in a
business organization. This policies are strategies and methods of accounting which are followed by
the firm or organization.The financial statement comprises of balance sheet, income statement and
cash flow of a business organization.

In financial and investment world, disclosures of disclosure statement ,all the relevant

information about the firm are required to be issued by the business corporation which can influence
potential investors through Annual Reports. This reports helps the investors to make informed
decisions and choose stocks or bonds which suits their investment needs and investment
portfolio.Many countries have developed laws and established guidelines on how and when this are
to be made and published.
 SOURCE DOCUMENTS

The following are the source documents of financial statements of WIPRO LIMITED:

1. BALANCE SHEET

Standalone Balance Sheet ------------------- in Rs. Cr. -------------------

Mar '22 Mar '21 Mar '20 Mar '19 Mar '18

12 mths 12 mths 12 mths 12 mths 12 mths

Sources Of Funds

Total Share Capital 1,096.40 1,095.80 1,142.70 1,206.80 904.80

Equity Share Capital 1,096.40 1,095.80 1,142.70 1,206.80 904.80

Reserves 53,254.30 44,145.80 45,311.00 48,185.20 41,357.80

Networth 54,350.70 45,241.60 46,453.70 49,392.00 42,262.60

Secured Loans 7,679.10 5,805.30 5,027.00 5,074.20 53.90

Unsecured Loans 0.00 0.00 0.00 0.00 4,666.20

Total Debt 7,679.10 5,805.30 5,027.00 5,074.20 4,720.10

Total Liabilities 62,029.80 51,046.90 51,480.70 54,466.20 46,982.70

Mar '22 Mar '21 Mar '20 Mar '19 Mar '18

12 mths 12 mths 12 mths 12 mths 12 mths

Application Of Funds
Gross Block 17,101.80 16,177.50 14,788.70 11,721.20 11,237.80

Less: Accum. Depreciation 9,064.10 8,889.40 8,149.30 7,320.20 6,870.80

Net Block 8,037.70 7,288.10 6,639.40 4,401.00 4,367.00

Capital Work in Progress 1,584.50 1,848.00 1,873.50 2,112.70 1,290.60

40,630.90 25,701.90 26,698.50 30,249.10 30,682.80

Investments

Inventories 87.50 91.00 174.10 340.30 294.30

Sundry Debtors 9,295.40 8,046.20 9,257.00 10,648.60 9,502.00

Cash and Bank Balance 4,898.10 9,783.20 10,444.00 10,390.20 2,322.00

Total Current Assets 14,281.00 17,920.40 19,875.10 21,379.10 12,118.30

Loans and Advances 15,848.70 12,977.90 10,219.90 8,856.20 10,212.60

Total CA, Loans & Advances 30,129.70 30,898.30 30,095.00 30,235.30 22,330.90

Current Liabilities 16,920.60 13,313.50 12,482.20 11,483.30 10,726.40

Provisions 1,432.40 1,375.90 1,343.50 1,048.60 962.20

Total CL & Provisions 18,353.00 14,689.40 13,825.70 12,531.90 11,688.60

Net Current Assets 11,776.70 16,208.90 16,269.30 17,703.40 10,642.30

Total Assets 62,029.80 51,046.90 51,480.70 54,466.20 46,982.70

Contingent Liabilities 8,271.50 1,999.00 2,693.50 2,618.90 10,123.10

Book Value (Rs) 99.14 82.57 81.31 81.86 93.42

2. STATEMENT OF PROFIT AND LOSS

Standalone Profit & Loss

------------------- in Rs. Cr. -------------------
account

Mar '22 Mar '21 Mar '20 Mar '19 Mar '18

12 mths 12 mths 12 mths 12 mths 12 mths

Income

Sales Turnover 59,574.40 50,299.40 50,407.00 48,123.80 44,710.00

Net Sales 59,574.40 50,299.40 50,407.00 48,123.80 44,710.00

Other Income 4,706.10 2,382.90 2,476.60 2,568.60 2,479.60

Stock Adjustments 6.40 -34.50 -159.90 55.30 -57.70

Total Income 64,286.90 52,647.80 52,723.70 50,747.70 47,131.90

Expenditure

Raw Materials 488.80 587.90 798.30 1,142.00 1,469.60

Employee Cost 31,542.40 26,467.30 26,171.80 23,808.50 21,756.20

Other Manufacturing Expenses 14,109.60 10,675.40 12,378.40 12,505.10 11,076.30

Selling and Admin Expenses 162.40 83.90 222.70 230.40 0.00

Miscellaneous Expenses 866.40 396.60 468.50 1,732.00 1,396.40

Total Expenses 47,169.60 38,211.10 40,039.70 39,418.00 35,698.50

Mar '22 Mar '21 Mar '20 Mar '19 Mar '18

12 mths 12 mths 12 mths 12 mths 12 mths

Operating Profit 12,411.20 12,053.80 10,207.40 8,761.10 8,953.80

PBDIT 17,117.30 14,436.70 12,684.00 11,329.70 11,433.40

Interest 367.40 402.60 535.20 524.90 384.30

PBDT 16,749.90 14,034.10 12,148.80 10,804.80 11,049.10

Depreciation 1,485.70 1,349.30 1,141.10 934.30 1,014.80

Profit Before Tax 15,264.20 12,684.80 11,007.70 9,870.50 10,034.30

PBT (Post Extra-ord Items) 15,264.20 12,684.80 11,007.70 9,870.50 10,034.30

Tax 3,128.90 2,623.90 2,327.00 2,256.50 2,311.50

Reported Net Profit 12,135.30 10,060.90 8,680.70 7,614.00 7,722.80

Total Value Addition 46,680.80 37,623.20 39,241.40 38,276.00 34,228.90

Equity Dividend 3,289.10 547.80 688.70 545.40 544.60

Per share data (annualised)

Shares in issue (lakhs) 54,820.70 54,791.39 57,133.57 60,339.35 45,237.84

Earning Per Share (Rs) 22.14 18.36 15.19 12.62 17.07

Equity Dividend (%) 300.00 50.00 50.00 50.00 50.00

Book Value (Rs) 99.14 82.57 81.31 81.86 93.42

3.CASH FLOW STATEMENT

Cash Flow of Wipro ------------------- in Rs. Cr. -------------------

Mar '22 Mar '21 Mar '20 Mar '19 Mar '18

12 mths 12 mths 12 mths 12 mths 12 mths

Net Profit Before Tax 12135.30 10060.90 8680.70 7614.00 7722.80

Net Cash From Operating Activities 7240.50 12727.70 9068.10 10210.10 6470.90

Net Cash (used in)/from

-12611.10 -1275.00 3202.70 -370.60 5002.30
Investing Activities

Net Cash (used in)/from Financing Activities 494.70 -12105.70 -12233.00 -1395.10 -12918.40

Net (decrease)/increase In Cash and Cash

-4885.10 -660.80 54.10 8447.40 -1440.00
Equivalents

Opening Cash & Cash Equivalents 9783.20 10444.00 10389.90 1942.50 3362.20

Closing Cash & Cash Equivalents 4898.10 9783.20 10444.00 10389.90 1922.20
4.FINANCIAL RATIO

Consolidated Key Financial

------------------- in Rs. Cr. -------------------
Ratios

Mar
Mar '21 Mar '20 Mar '19 Mar '18
'22

Investment Valuation Ratios

Face Value 2.00 2.00 2.00 2.00 2.00

Dividend Per Share -- -- -- -- --

Operating Profit Per Share (Rs) 30.43 26.96 21.60 19.25 22.96

Net Operating Profit Per Share

144.68 113.04 107.01 97.81 120.45
(Rs)

Free Reserves Per Share (Rs) -- -- -- -- --

Bonus in Equity Capital 99.81 99.86 99.86 99.86 97.88

Profitability Ratios

Operating Profit Margin(%) 21.03 23.84 20.18 19.68 19.06

Profit Before Interest And Tax

16.72 18.66 16.06 15.69 14.50
Margin(%)

Gross Profit Margin(%) 17.15 19.38 16.77 16.38 15.18

Cash Profit Margin(%) 18.82 21.17 18.56 17.79 17.73

Adjusted Cash Margin(%) 18.82 21.17 18.56 17.79 17.73

Net Profit Margin(%) 15.41 17.43 15.90 15.25 14.68

Adjusted Net Profit Margin(%) 15.02 16.78 15.22 14.60 14.03

Return On Capital Employed(%) 19.44 23.34 21.26 18.59 17.91

Return On Net Worth(%) 18.69 19.66 17.62 15.95 16.69

Adjusted Return on Net

18.71 19.77 17.70 15.99 16.69
Worth(%)

Return on Assets Excluding

119.40 100.47 96.89 93.95 106.48
Revaluations

Return on Assets Including

119.40 100.47 96.89 93.95 106.48
Revaluations

Return on Long Term Funds(%) 22.05 25.87 23.32 20.72 20.63

Liquidity And Solvency Ratios

Current Ratio 0.91 1.18 1.22 1.34 1.32

Quick Ratio 1.54 1.86 1.84 2.38 1.95

Debt Equity Ratio 0.23 0.12 0.11 0.17 0.26

Long Term Debt Equity Ratio 0.09 0.01 0.01 0.05 0.09

Debt Coverage Ratios

Interest Cover 29.42 28.30 17.72 16.66 18.57

Total Debt to Owners Fund 0.23 0.12 0.11 0.17 0.26

Financial Charges Coverage Ratio 35.20 33.73 20.56 19.30 22.19

Financial Charges Coverage Ratio

29.75 27.65 17.11 15.85 18.35
Post Tax

Management Efficiency Ratios

Inventory Turnover Ratio 594.54 582.09 327.82 149.38 161.68

Debtors Turnover Ratio 7.57 6.23 5.97 5.86 5.56

Investments Turnover Ratio 0.98 1.00 1.00 149.38 161.68

Fixed Assets Turnover Ratio 3.77 3.09 3.32 4.20 4.11

Total Assets Turnover Ratio 1.53 1.32 1.30 1.10 1.15

Asset Turnover Ratio 1.11 1.01 0.96 0.93 0.86

Average Raw Material Holding -- -- -- -- --

Average Finished Goods Held -- -- -- -- --

Number of Days In Working

-16.68 35.81 32.70 62.09 1.28
Capital

Profit & Loss Account Ratios

Material Cost Composition 0.84 1.12 1.53 2.38 3.38

Imported Composition of Raw

-- -- -- -- --
Materials Consumed

Selling Distribution Cost

0.25 0.16 0.41 0.45 --
Composition

Expenses as Composition of Total

-- -- -- -- --
Sales

Cash Flow Indicator Ratios

Dividend Payout Ratio Net Profit 26.82 5.05 7.05 6.03 6.77

Dividend Payout Ratio Cash

21.43 4.02 5.81 4.96 5.35
Profit

Earning Retention Ratio 73.20 94.98 92.98 93.98 93.23

Cash Earning Retention Ratio 78.59 96.00 94.22 95.05 94.65

AdjustedCash Flow Times 0.99 0.50 0.50 0.88 1.23

 CONCLUSION

In conclusion, financial statement includes the cash flow statement ,balance sheet and income
statement. Every statement shows thee financial situation of the company separately. With
financial statement in combination, it determines a companies health and stability also providing
on how the company conducts its business and how the business can manage its expenditures and
revenues, and estimate its value. It should not be compromised as it increases the efficiency of the
business operations. The disclosure of financial statements helps the business organization attract
potential investors by publishing annual reports.
 REFERENCES

We have been able to complete this assignment on the topic-”IMPORTANCE OF

DISCLOSURE IN FINANCIAL STATEMENT AND IMPACT ON COMPANIES
PERFORMANCE” by the help of the followings :

I. ACCOUNTANCY AND ANALISYS OF FINANCIAL STATEMENT- DK GOEL

II. ANALYSIS OF FINANCIAL STATEMENT- TS GRREWAL
III. LINKS AND ARTICLES FOUDND ON GOOGLR FOR REFERENCES

WEBSITES:

 https://www.completecontroller.com/importance-of-accounting-policies-disclosure-and-
their-impact-on-business/
 https://smallbusiness.chron.com/importance-accounting-standards-44927.html
 https://www.wallstreetmojo.com/objectives-of-financial-statement-analysis/
 https://www.sec.gov/reportspubs/investor-publications/
investorpubsbegfinstmtguidehtm.html
 https://onlinemasters.ohio.edu/blog/financial-statement-analysis-helps-business-grow/
 https://www.scirp.org/journal/paperinformation.aspx?paperid=102605
 https://www.cfainstitute.org/-/media/documents/article/position-paper/financial-
reporting-disclosures-investor-perspectives-on-transparency-trust-volume.ashx
 https://onlinemasters.ohio.edu/blog/financial-statement-analysis-helps-business-grow/
 https://www.fluencetech.com/post/what-are-financial-statement-disclosures