UNIT - 1 Corporate Financial Reporting

                      UNIT -1

1Q) Define corporate financial reporting. Explain the concept, objectives, and characteristics.

 Corporate financial reporting is a series of activities that allows companies to record operating data and accurate accounting statements at the end of each month, quarter, and year. Bookkeepers record operating data by debiting & crediting financial accounts. Accountants prepare financial statements following corporate policies, industry practices, and regulatory guidelines.

                Financial reporting is the communication of the financial information of an enterprise to the external world. The process of financial reporting consists of four procedural steps which are as follows:

1. perception of the significant activity of the accounting entity / in the environment in which the entity performs. ( financial transactions)

2. Symbolising the perceived activities in such a fashion that a database of the activities is available that can be analyzed to grasp an understanding of the interrelationship of the mass of perceived activities. (symbolization has taken the form of recording in accounts, journals, and ledgers)

3. Analysis of the model of activities to summarize the interrelationships among activities & to provide a status picture/ map of the entity( developing accounting reports)

4. Communication (transmission)of the analysis to users of the accounting products to guide decision-makers in directing future activities of the entity / in changing their relationship with the entity.

           corporate financing is an important function because it enables organizations to present accurate accounting statements. Financial statements are the central features of financial reporting which generates financial information for external users. The following are the principal financial statements.

1. Balance sheet ( or statement of financial position)

2. statement of profit and loss account( or statement of earnings/ income statement)

3. cash flow statement.

1. Balance sheet:   A corporate balance sheet is also known as a statement of financial condition/ statement of financial position. It provides information about a company's assets, liabilities, and equity capital. Assets are economic resources that a company owns. liabilities are debts an organization must repay. Equity capital represents funds that financial market participants invest in a company.

2. Income statement:   An organization's income statement is an important report. The statement provides data on a firm's expenses and revenues, including whether the firm is profitable / not. The company's business partners include suppliers, customers, and lenders.

3. cash flow statement:  A cash flow statement indicates liquidity movements within a company's operations. In other words, the report tells the tale of the company's cash payments and receipts over a while. The statement indicates - cash flow from operating activities, cash flow from investing activities, and cash flows from financing activities.

        These three financial statements are intended to provide relevant, reliable, and timely information essential for making investment, credit, and similar decisions. Such financial statements are called general-purpose financial statements.


OBJECTIVES:

The following are the major objectives of financial reporting.

1. financial reporting should provide information that is useful to present and potential investors creditors and other users in making rational investment, credit, and similar decisions.

2. financial reporting should provide information about how an enterprise obtains and spends cash about its borrowing and repayment of borrowing, about its capital transactions, including cash dividends and other distributions of enterprise resources to owners, and about other factors that may affect the liquidity/ solvency position of an enterprise.

3. financial reporting should provide information to help investors, creditors, and others assess the amount of timing and uncertainty of prospective net cash inflows to the related enterprise.

4. financial reporting should provide information about an enterprise's financial performance during a period.

5. the primary focus of financial reporting is information about an enterprise's performance provided by measures of earnings and its components.

6. financial reporting should provide information about how the management of an enterprise has discharged its stewardship responsibility to owners for the use of enterprise resources entrusted to it.

7. financial reporting should provide information that is useful to managers and directors in making decisions in the interest of owners.


Characteristics:

The following are the characteristics of financial reporting

1. Understandability: Information in annual reports should be presented in such a way that is readily understandable by users. It requires that users have a reasonable knowledge of business and economic activities, accounting, and a willingness to study the information with reasonable diligence.

2. Relevance: Information is said to be relevant if it can influence the economic decisions of users by helping them evaluate past, present/future events/confirming/correcting, their past evaluation. It is suggested that all those items of information, that may aid the users in making predictions/decisions, should be reported. Information, that does not assist users in making decisions is irrelevant and hence should be omitted.

3. Reliability: Information is reliable if it is free from material error and bias and faithfully represents what it purports (appears) to represent information is reliable to the extent a user can depend upon it to represent the economic conditions/ events that it aims to represent. Being free from bias implies impartial measurements and reporting by the enterprise of its events and transactions.

4. Comparability: Users must be able to compare the financial statements of an enterprise through time to identify trends in its financial position, performance, and cash flows and of different enterprises to evaluate their relative financial position, performance, and cash flows. The important implication of comparability is that users should be informed of the accounting policies employed in the preparation of financial statements, any changes in those policies, and the effects of such changes.


2Q) Discuss the various types of corporate financial reports

  • Balance sheet: A corporate balance sheet is also known as a statement of financial condition/ statement of financial position. It provides information about a company's assets, liabilities, and equity capital. Assets are economic resources that a company owns. liabilities are debts an organization must repay. Equity capital represents funds that financial market participants invest in a company.
  • Profit and loss a/c or Income statement: An organization's income statement is an important report. The statement provides data on a firm's expenses and revenues, including whether the firm is profitable / not. The company's business partners include suppliers, customers, and lenders.
  • Cash flow statement: A cash flow statement indicates liquidity movements within a company's operations. In other words, the report tells the tale of the company's cash payments and receipts over a while. The statement indicates - cash flow from operating activities, cash flow from investing activities, and cash flows from financing activities.
  • Business responsibility report: SEBI recently mandated that the top 1000 listed entities based on the market capitalization of BSE & NSE should include a business responsibility report in their annual report. Other listed entities may voluntarily disclose business responsibility reports. These reports can help entities indicate(demonstrate) to key stakeholders- including investors, employees, government & consumers- that their businesses are not detrimental (harmful) to the environment, society/employees. This will positively impact brand reputation, attract, motivate, and retain employees, provide access to global markets, and attract foreign capital.
  • Corporate social responsibility (CSR)report: Every company having networth of Rs.500 crores/more or turnover of 1000 crore /more or net profit of Rs.5 crores/more during any financial year shall represent a CSR committee of the board. The board's report of section 134(3) shall disclose the composition of the CSR committee & disclose contents of such policy in its report & also place it on the company's website, if any, in such manner as may be prescribed and ensure that the activities as are included in CSR policy of the company are undertaken by the company. If the company fails to spend the prescribed amount, the board shall, in its report specify the reasons for not spending the amount.


3Q) PUBLISHED FINANCIAL STATEMENTS

Published financial statements refer to the official and publicly available documents that provide a comprehensive overview of a company's financial performance and position over a specific period. These statements are typically prepared following accounting standards and regulations and are made available to shareholders, potential investors, regulatory authorities, and the general public.

Annual Reports:

An annual report is a comprehensive report detailing a company’s activities throughout the preceding year. Its purpose is to provide users, such as shareholders or potential investors, with information about the company’s operations and financial performance.

What Does an Annual Report Contain?

Annual reports provide a significant amount of information for its readers who will be able to get a good overview of the company’s overall performance in the preceding year. It is important to note that many annual reports are not traditional reports with large amounts of text; many companies often incorporate a lot of graphics and images, resulting in a visually appealing document.
  • Notice of AGM
  • Directors report
  • Balance sheet
  • Profit and loss account
  • Cash flow statement
  • Shareholders information
  • Risk management report
  • Audited consolidated financial statements
  • Auditors report on financial statements
  • Information on HR
  • Management discussion & analysis


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