What is the objective of ‘Financial Reporting’?
getsix® understands the purpose of these reports is to examine resource usage, cash flow, business performance and the financial health of your business, allowing you to track, analyse and report your business income.
The information should be beneficial from a number of perspectives, such as whether to provide credit to a customer, whether to lend to a borrower, and whether to invest in a business. The information should be understandable to those with a reasonable grounding in business, which means that it should not be laced with jargon or burdened with so much detail that it is impossible to extract the essentials about a business from its financial statements.
There are three main aims of ‘Financial Reporting’:
- To provide relevant information to investors
Investors will want to know how cash is being re-invested in the business, and how efficiently capital is being used. ‘Financial Reporting’ will help investor decide whether your business is a good place for their cash.
- To track cash flow
Where is your business going? Where is the money coming from? Is your business making a profit or a loss? These answers are important to know – they will show how well your business is performing, and whether it can cover its debts and continue to grow.
- To analyse assets, liabilities and owner’s equity
By observing these, and any changes to them, you can work out what to expect in the future, and what you can change now to get ready. This also shows the accessibility of assets for future growth.
‘Financial Reporting’ must obey a group of taxation, accounting and legal requirements, called the International Financial Reporting Standards (IFRS). This is so a set of business’ finances can be understood all over the world – a stipulation with the increase of global companies and international shareholders.