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Purpose of Financial Reporting (pdf)

   

Added on  2021-02-19

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Financial Reporting

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INTRODUCTIONFinancial reporting is the process of presenting the financial information regarding thedifferent financial data to the different stakeholders for effective and efficient decision-makingprocess. It includes the various information like income statement, cash flow statement, balancesheet etc. The report highlight the different purpose of the process like providing financialinformation, evaluate the data, decision-making etc. and the requirement of conceptual andregulatory like IFRS, IAS etc. in the accountancy firm. It also explains the different internal andexternal stakeholder such as creditor, customer, employee, owner etc. to evaluate the financialinformation via the different accounting report. It also highlights the difference in financialreporting and their importance to the accountancy firm and the various model of financialreporting like income statement, balance sheet and cash flow to ascertain the financial position ofthe company to make the decision of investment and plan different strategies.LO 11 Financial reporting purposeFinancial reporting : It refers to disclosing company performance to the internal andexternal stakeholders and aware them regarding the growth and market share of company inglobal market or in compare to the competitors (Crowther, 2018). Financial report are preparedfor the different purpose such as :Provide information : The main purpose of company to prepare financial statementreports is providing information like the sales of the company, its profit and revenue of theparticular period to the different stakeholders such as internal and external stakeholders to usethe financial information for the making the decision and evaluate performance of organizationand its employees. The financial information also help for planning, benchmarking, analysingand decision-making.Decision making : Financial reporting are prepared to present the financial informationfor decision-making. It helps investor to take the decision regarding the investment on the basisof its profitability and growth in the market. It also helps creditors to know the wealth of thecompany and take the decision to provide the credit on the basis of its wealth and performance(Sutton, Cordery and van Zijl, 2015). It helps to achieve financial and non financial goal of thecompany with the efficiency and effectiveness.2

Regulate performance : The purpose of financial reporting is to regulate theperformance of the accountancy firm by comparing its value and financial data to the companydata in same field or compare the data to last year financial data (Fekadu, 2018). Thecomparisons of the statement help the organization to find that whether the company isimproving its performance to the last year or not and what kind of strategies are prepared toimprove the performance.Control : Financial reporting are prepared to control the financial data and activities ofthe employee and manager to protect data from manipulation. It helps the company to -providethe accurate and correct data to its stakeholder which represent true information of the companyso the stakeholder can prepare the strategies for the organization to achieve the objective(Crowther, 2018).2. Conceptual framework and regulatory framework purpose and requirementConceptual framework is used to prescribe the function, nature and objective of financialstatement and financial statement. They are prepared to set the accounting rule for company toreport the accounts of the organization of particular period. The purpose of the accountingframework is to ensure that the consistency approaches are applied by the company (Chazdonand et.al., 2016). The various conceptual framework like IASB. GAAP and IFRS are used toregulate the financial information and set the various rules to present the financial statements.Requirement and purposeGAAP (General accepted accounting principle) help the company to develop theinformation and statement according to the decided rules and regulation (Eizenberg andJabareen, 2017). It helps the company to follow the accounting standard to meet the requirement oforganization and prepare the statement accurately and accountable. Conceptual framework such as IASB and IFRS strengthen the credibility and profitabilityof the company by attracting large number of investors.It helps the employee and manager to prepare the data and provide the audit facility topresent the useful information to the stakeholder by minimizing the less usefultransaction. 3

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