Financial Reporting framework

Background?

Financial reporting started over a century ago and has since the 1800s developed from just notes about people’s ability to repay debts to computerised reports.

Financial reporting increased during the 19th century as a result of corporations being eager to draw in more capital to expand. The financial statements became more important towards maintaining investor’s confidence and therefore are now regulated by those in authority.

What is it?

Financial reporting is concerned with the preparation of financial statements in accordance to accounting standards for external users. Financial Accountants concern themselves with financial reports such as the Income statement to make economic decisions.

The key thing to remember is that financial reporting is all about the presentation of information according to certain accounting standards. Three Key areas:

  1. Different Users and Accounting standards
  2. Financial Statements
  3. Analysis and interpretation of financial information in financial statements

Why is it Necessary?

It is important because the users of financial statements such as shareholders will use this to determine the performance and financial position of a business in order to make financial/operating decisions. For example, Shareholders could use this information to assess the firm’s performance, for example the profitability and thus whether it is worth buying/selling shares in the company.

Where can it be found?

Financial accountants produce financial reports as a regulatory requirement and make it available to users such as shareholders, employees, payables etc.