What is financial reporting?
The traditional function of financial reporting was to provide business owners with information about the companies that they owned and operated. Once the delegation of managerial responsibilities to hired personnel became a common practice, financial reporting began to focus on stewardship—that is, on the managers’ accountability to the owners. Its purpose then was to document how effectively the owners’ assets were managed, in terms of both capital preservation and profit generation. This is a system of presenting financial data of a company's position, operating performance, and funds flow for an accounting period. Financial statements along with related information may be contained in various forms for external party use such as in the annual report, SEC Form 10-K, and prospectus. If “accounting is the language of finance” (Lasher, 2008, p. 9) then financial reporting is the “communication of financial information useful for making investment, credit, and other business decisions” (Wild, Shaw, & Chiappetta, 2009, p. 681) Such communications include general purpose financial statements such as income statements, balance sheets, equity reports, cash flow reports, and notes to these statements. Additionally, items such as SEC filings, press releases, meeting minutes, and auditor’s reports are also included in financial reporting (Wild, Shaw, & Chiappetta, 2009, p. 681). Many financial reports, or the accounts and data they represent, are subject to various regulations and standards from organizations such as the Securities Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), and the International Accounting Standards Board (IASB) (Wild, Shaw, & Chiappetta, 2009, p. 9). Much like any language, financial statements could have their own “dialect” so to speak. For example, knowing about the use of cash-based accounting versus accrual based accounting could impact some very serious business or investment...
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