One of the most important tasks for an accounting or finance team is providing accurate financial statements for the company.
If you are wanting to know more about the requirements of these reports and why are they important, the following guide will explain more.
What is included in an accountancy report?
An accountancy report doesn’t just contain one report type but is made up of a range of different records, all of which demonstrate slightly differing insights. Some of the most common include the following:
Income statement – this report details all revenue generated during a given period, as well as all expenses that occurred, arriving at a final profit or loss figure. This is crucial for judging the overall performance of a business. Absolutely all income and expenses must be accounted for in this report in order to give an accurate reflection on how the business is operating.
Statement of cash flows – this is the main source of information on how a business uses its assets to create income. This statement goes into detail on how the company is using its cash and assets to generate cash flow into the business. This statement is useful for determining a business’s financial health.
Balance sheet – this report lists all of a company’s assets, liabilities, and equity. It shows a snapshot of the company’s finances at the date of publication, using the sum ‘assets = liabilities + shareholders’ equity’. From this report, several different ratios can be derived which are useful in assessing the liquidity of a business and is particularly useful for making historic comparisons.
What regulations are there on financial statements?
Different countries each have their own regulations when it comes to financial reporting. For example, in the US public companies are required to follow the Generally Accepted Accounting Principles (GAPP).
These are the set of accounting rules that must be followed in each accounting report. This can be overseen by an accountancy service to ensure compliance with the principles.
GAAP reporting includes 10 principles that must be followed to ensure compliance, including consistency of reports and the sincerity and periodicity of them.
What are the risks when reporting business finances?
While financial reports provide incredibly useful insights for businesses, there are more than just business impacts if they are not completed accurately. If an organisation is found to have withheld or manipulated the data in their reports, then they could be prosecuted, fined, or potentially declared as fraudulent or made bankrupt. As well as this causing legal issues, it also impacts the public image and can cause bad press and a loss in both customers and investors.
As well as legal implications, inaccurate legal reporting can result in poor financial and operational decisions being made moving forward. Businesses need clarity to strategize and make decisions, and being unaware of a true reflection of financial position can prevent this from happening.
Interesting Related Article: “What are some reasons to Get a Business Accountant?“
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