Therefore, the main purpose of financial reporting is providing a true and fair view of the company’s financial situation with the purpose of forecasting and making informed decisions in the short, medium and long term. Financial reporting is also a fundamental part for Management Control.
Then, financial reporting is a necessary tool for any company because it encourages time management and supports the right decision-making based on data analysis.
Objectives of Financial Reporting
The main objective of financial reporting is to reflect a true image of the company’s financial situation for both, internal and external communication. In this way, we can draw tactical plans to improve management; marketing; finance or corporate strategy activities.
Likewise, financial reporting also provides a sort of budget control; expenses and income through the visualization of quantitative and qualitative data on the entity’s evolution.
In addition, financial reporting allows the organization of the necessary information to comply with taxes applicable to each country. Thus, financial reporting makes easier your work to honor your duty of publishing your financial movements, and paying taxes.
Finally, financial reporting should be prepared at the end of each month to monitor that the operating expenses comply with the company’s objectives set in the annual budget; so as to consistently adapt the activities to the business’ reality.
Who benefits from financial reporting?
In general, all companies. Even non-profit organizations also use financial reporting to correctly fill out the legal requirements that exempt them from paying taxes. Also, financial reporting helps all companies to give accounts to partners to show the correct administration of financial resources.
On the other hand, when it comes to private equity organizations; financial reporting is the quintessential document to present the company to the stock exchanges, and making public auctions.
Among the advantages of counting on financial reporting we found that they:
- Simplify legal audits. Financial reporting allows auditors to review and detect variances and inconsistencies; or otherwise, consistency and transparency in operations.
- Promote planning. Financial reporting constitutes a milestone for the creation and monitoring of financial objectives; benchmarking and decision making of any organization.
- Strengthens tax collection. Thanks to the organization that the financial reporting provide; we can detect and appreciate the real value of our businesses so to properly calculate taxes.
- Provide consistent analysis over the years. Financial reporting allows all stakeholders to analyze the performance and management of an organization.
Principles of Financial Reporting
Financial reporting must take into account this series of requirements:
In order to achieve a comprehensive vision of all the processes of the organization; it must collect all the corresponding information from each department that makes up the organization. They can be both, real and projected data from a budget.
For strategic decision making; financial reporting must be sufficiently clear to facilitate analysis and understanding. Then, it must present indicators; graphics; comparative tables and all those considerations that schematize and transform the financial information.
Create a flow of internal and external information
Financial reporting is intended to internally inform accounting information to the company’s managers. In this sense and on the one hand, it collects important data for those who make strategic decisions to guarantee the correct resource management; and detect in time any variation that they may suffer, as well as the deviations experienced by budgets.
On the other hand, it also facilitates the reception of important data for external agents; shareholders; and other interested parties in the event that the company quotes its shares in the stock market.
It saves companies from making manual settlements that brought a lot of error margin, or awkward data load. To avoid transcription errors and speed up data loading; it is essential that financial reporting automate compilation and load of accounting data that also generate monthly reports.
Now the next question is, what are your options in automated tools for financial analysis? The right answer is Enterprise Resource Planning (ERP). ERP tools are the best option to keep your reports up to date.
Fusionworks has the best ERP options for your company. Contact us here to know your needs and design the best plan to respond to your needs.