ACCOUNTING BY – VIDHIKA ROLL NO – 23504/126 WHAT DO YOU MEAN BY CORPORATE FINANCIAL REPORTING
• Corporate Financial Reporting is
communication of published financial statements and related information form a company to investors, creditors, government authorities and other external users. FINANCIAL REPORTING V/S FINANCIAL STATEMENT • Financial reporting has a broader scope than the financial statements. Financial statements are only one of the many means of conveying information about financial performance and financial position of the enterprise. • The financial statement in relation to a company, includes balance sheet, statement of profit and loss (or in case of a company carrying on activity not for profit, an income and expenditure account), cash flow statement, and explanatory notes. It will also include statement of changes in equity, in case of companies which are required to prepare financial statements as per Ind AS. • Financial reporting includes not only financial statements but also other means of communicating information. Management may communicate information to those outside an enterprise by means of financial reporting other than general purpose financial statements either because the information is required to be disclosed by regulatory rule or because the management considers it useful to the those outside the enterprise and discloses it voluntarily. NEED OR IMPORTANCE OF CORPORATE FINANCIAL REPORTING FINANCIAL REPORTING OF ACCOUNTING INFORMATION SPECIFIED BY LAW AND ACCOUNTING STANDARDS • Accounting is the process of identifying, measuring and communicating economic information to permit informed judgment and decisions by users of information. • There is need for preparation and communication of general purpose financial statements to the users of accounting information, particularly to the external users. Therefore, companies must disclose minimum amount of information specified by law and accounting standards. • Managers should disclose the financial performance of the year or quarter that went by and in simple language that an investor can understand. VOLUNTARY DISCLOSURE
Voluntary disclosure has become an important aspect of financial
reporting. The need for voluntary disclosure arises from the following: • (a) Capital market forces: Investors and capital market analysts prefer the firms which are more transparent to firms that just satisfy minimum disclosure requirements. Firms that provide more disclosures enjoy greater credibility with the investors and such companies attract more capital at relatively lower costs. • (b) High Standard of Corporate Governance: Customers are more comfortable with suppliers that follow high standards of corporate governance, such as Infosys Ltd., and extensive voluntary disclosures. Companies may disclose in advance the new products to be launched. For example, Microsoft announced new operating system well in advance. Similarly, Boeing announced new aircraft in advance so that the airport authorities prepare the required infrastructure. • (c) Maintenance and enhancement of reputation in managerial labour market: Managers earn their remuneration by supplying their talent for managing enterprises. They can maintain and enhance their reputation by providing useful voluntary disclosures to the external world. Thus there is need for better financial reporting. NEED
• Transparency and Accountability
• Decision-Making • Regulatory Compliance • Internal Control • Strategic Planning: THE CORPORATE FINANCIAL REPORTING PROCESS INVOLVES THE FOLLOWING STEPS: • Recording financial transactions: All financial transactions of the company are recorded in the accounting system. This includes transactions such as sales, purchases, expenses, and capital investments. • Adjusting entries: At the end of the accounting period, adjusting entries are made to ensure that all revenues and expenses are recognized in the correct period. This includes adjusting entries for accruals, prepayments, and depreciation. • Preparation of financial statements: The financial statements are prepared based on the information recorded in the accounting system. The balance sheet shows the assets, liabilities, and equity of the company at a particular point in time. The income statement shows the revenue, expenses, and net income of the company over a period of time. The cash flow statement shows the cash inflows and outflows of the company over a period of time. The statement of changes in equity shows the changes in equity during the accounting period. • Review and audit: The financial statements are reviewed and audited by an external auditor to ensure that they are prepared in accordance with GAAP or IFRS and that they are free from material misstatements. • . Communication: The financial statements are communicated to the stakeholders of the company ,including shareholders, creditors, analysts, and regulators. This is done through the annual report, which includes the financial statements and other information about the company's operations, management, and governance.
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