Companies depict their financial information to stakeholders through financial reporting. This may also be a legal requirement and may align with standards like the General Data Protection Regulation (GDPR), International Financial Reporting Standards (IFRS), and Generally Accepted Accounting Principles (GAAP).
Profits, capital, revenue, cash flow, and expenses are types of financial information included in financial reporting and many companies outsource their reporting to financial and accounting services.
Financial reporting services will include documents like income statements, balance sheets, statements of cash flow and other financial statements, footnote disclosures, annual reports issued to shareholders, and any prospectus issued to potential investors.
A company may use company secretarial services and finance and accounting services and outsource their financial services to a financial management service or accountant in Ilford for accurate reporting.
Uses
There are several uses to financial reporting and tax purposes are one of them. Financial reporting is required by the state to ensure companies pay their taxes. These reports also provide investors and creditors with an accurate picture of a company’s financial condition when making decisions.
An accountant or trusted business partner may also use bookkeeping and financial reporting to examine a company’s cash flow and evaluate its operations while a company may make use of financial reporting to mitigate errors and avoid making costly mistakes.
Forecasting, planning, and decision-making also rely heavily on financial reporting and a company may use outsourced financial management services to ensure they are making the right decisions for the growth of the company.
Implications of financial reporting
There are several studies carried out on the economic implications of corporate financial reporting and a financial management service may take into account the findings of these studies when preparing financial reports for a company.
One of the key studies in this area is from 2004, with versions published in 2005 as well. Titled ‘The Economic Implications of Corporate Financial Reporting’, the study is by John R. Graham, Campbell R. Harveya, and Shiva Rajgopal.
The researchers surveyed 401 financial executives and conducted in-depth interviews with 20 others to determine the key factors that drive decisions related to performance measurement and voluntary disclosure.
“In terms of stylised facts, we find that financial officers view earnings, not cash flows, as the most important metric reported to outsiders,” the report stated. It explained that managers are focused on short-term earnings benchmarks and want to meet or beat earnings benchmarks to build credibility with the capital market, maintain or increase stock price, improve the external reputation of the management team, and convey future growth prospects.
The study also found that most earnings management was achieved through real actions and not accounting manipulations.
“Surprisingly, executives are more reluctant to employ within GAAP accounting discretion, such as accrual management, to meet earnings targets, although accrual management is likely cheaper than giving up economic value,” the study added.
While this study looks closely at the implication of corporate financial reporting, the benefits of financial reporting and outsourcing your finance are also important to look at.
Benefits
One of the main reasons companies opt for outsourced financial statement services or a financial management service for bookkeeping or professionals like a reliable financial business partner or an accountant is because outsourcing these services to reliable, skilled, and experienced professionals can add to how these functions or tasks benefit a company.
A financial management service will have teams dedicated to your company and they will study the latest regulations and make use of the latest software and tools for bookkeeping and financial reporting and analysis.
When considering statutory reporting services, for instance, outsourcing these to reliable company secretarial services UK can ensure a company complies with the regulations and standards in place and include all necessary statements and documents in their financial reporting.
In addition to this, financial reporting can provide insight to the company’s finances and this can be used in decision-making and expansion. A reliable financial business partner or trusted business advisor will make use of financial reporting and analysis to advise or guide a business.
Real-time tracking is also a benefit to financial reporting and the financial information collected will aid in trend identification and debt management.
Financial reporting is a great way to track progress too, and when you opt for outsourcing your finance, your trusted business advisor or accountant in Ilford may use your financial reporting to understand the progress made by the company as well as areas that need improvement.