What is Financial Reporting? Expert Tips for Finance

Financial reporting is always at the top of mind of business professionals, especially CFOs. With the various types of accounts to track and the importance of each, the process of producing financial reports should be made easy, and it can be.

After we dive into the details of financial reporting, we will cover report automation and how software solutions can maximise your time and aid in ensuring that all your data is accurately recorded and reported.

‍

Coming Up

1. What is Financial Reporting?

2. Why is Financial Reporting Important?

3. What is the Main Purpose of Financial Reporting?

4. What are the Benefits of Financial Reporting?

5. 3 Different Standards for Financial Reporting

6. What are the Types of Financial Reporting?

7. Why Use Report Automation?

8. What is the Purpose of an Audit Report?

9. Why is Compliance Reporting Important?

10. Final Thoughts

‍

What is Financial Reporting?

Financial reporting is the documented disclosure of financial data in a given period of time that summarises a company’s financial health. This includes a company’s revenues, profits, expenses, capital, and cash flow.

While these metrics don’t provide an entire picture of how a company operates on a micro scale, they do give a good sense of its overall financial strength and health.

These statements are shared with people like stakeholders, creditors, and investors who exist outside of the company, but have a clear interest in its financial status.

Financial reporting encompasses:

• Financial statements (income statement, cash flow statement, balance sheet, etc.)
• Press releases or calls that report quarterly earnings and relevant information
• Financial information on a company’s public website
• Financial reports provided to governmental agencies like the Securities and Exchange Commission (SEC)
• Quarterly and annual reports shared with stockholders
• Notes within the financial statements
• Prospectuses about the issuance of securities and common stock

Not only is financial reporting regulated and legally required, but these reports also hold immense power and insights when utilised to their capacity. With data analysis, your financial statements can be transformed to help your business reach operational efficiency.

With the knowledge gleaned from these data-heavy statements, you can be enabled to make decisions in an agile manner that are best for your business’ financial health and future.

‍

Why is Financial Reporting Important?

Financial reporting is a crucial aspect of conducting business. Along with making better decisions and maximising revenue, financial reporting serves three main purposes. These include:

1. Financial understanding for creditors, investors, and other businesses
2. Tax requirements
3. Financial software can determine your next steps

Financial Understanding

For any individual looking to invest in a business, the business’ financial reporting provides the  necessary information to know whether or not it’s a wise investment. In the same vein, any business that needs to borrow money will be assessed by creditors based on their financial reporting.

To protect the interest of investors, the Sarbanes-Oxley series of laws were passed that aimed to standardise financial reporting.

Tax Requirements

One of the main reasons that financial reporting is used is for tax purposes. To ensure that a business pays their fair share of taxes, the government utilises financial reports. Audits have also become regulated and firms exist to carry out these specific functions.

Next Steps

Financial reports don’t exist in isolation for business leaders making decisions. However, they do serve as the foundation for other management reports that matter in decision-making. With financial reporting, companies can conduct financial analysis.

This type of analysis can be used to predict the future. Financial automation software provides you with dashboards filled with real-time data and trend-spotting capabilities.

Beyond these important reasons, financial reporting also provides:

Internal Purposes

When a business leverages financial analysis and reporting, then its valuable information is made accessible to anyone within the organisation. Having a clear snapshot of how the business is doing will help key players and stakeholders better understand what’s working and what may need to undergo process improvement.

Financial Ratios

To fiscally manage a business, financial ratios are used to quickly understand how its functioning. Investors can use financial ratios and data to understand a business’ risks or liabilities at any point in time.

Using dashboards and graphs, this type of performance-based information is key for decisions. Some popular financial reporting ratios are: quick ratio, return on equity, working capital ratio, and berry ratio.

Minimising Risk

Automation software that boasts real-time live data and dashboards can help your business avoid or prevent fraud from occurring.

They can minimise financial risk because when performance sharply dips or an anomaly occurs, then you can see it happen as it happens. If that’s the case, then you have more time to react and reduce any detrimental outcomes from occurring.

‍

What is the Main Purpose of Financial Reporting?

Financial reporting provides a robust and quick way to assess how a business is operating, along with its cash flow and financial health. With the ability to review this information at a glance, business leaders and stakeholders are well-equipped to make timely choices and allocate resources optimally.

These reports display: revenue, expenses, capital, cash flow, and profits in an organised and easy-to-understand manner.

‍

What are the Benefits of Financial Reporting?

To sum up, here’s an overview of the main benefits of financial reporting (even though it’s legally required, you’ll want to do it right with the aid of automation solutions to maximise these upsides):

• Real-time information: Given real-time information, you’ll never have to suffer from making a bad move again because you were missing data or necessary insights.
  

• Better debt management: Debt can be the downfall of your business. With reporting, you will be able to easily track your assets and liabilities to manage debt.
  

• Compliance: Financial reporting software ensures that your data is accurate and updated. For this reason, you reduce (and can sometimes even remove) the threat of errors, which allows you to remain 100% compliant.
  

• Cash flow: Given the 360 degree view of your financial health through the various financial statements, you can know your cash flow, which is important to maintaining your overall financial health.

• ‍Communication and oversight: Software that runs and updates financial reporting means that your team can always access valuable insights. With everyone aligned, the organisation can move in the right direction together.

‍

3 Different Standards for Financial Reporting

With time and the addition of new software solutions and the influx of data, new regulations enter the business landscape. Here’s a look at three main methods to standardise financial reporting:

GAAP

The Generally Accepted Accounting Principles (GAAP) is the United States’ method for accounting and financial reporting.

IFRS

The International Financial Reporting Standards (IFRS) is used by north of 110 countries globally, including India, China, Australia, and Canada.

GDPR

Relatively recently (2018), The General Data Protection Regulation (GDPR) came into effect which aim to protect the personal information and data of people. So, if you’re working with any kind of financial data, you must comply with GDPR.

‍

What are the Types of Financial Reporting?

The main types of financial reporting cover:

Balance Sheet

The statement that includes a company’s assets, liabilities, and the owner’s equity, which make up the financial position.

Profit & Loss

Known as the income statement, the profit and loss (P&L) statement displays a company’s expenses, revenue, and net loss or income at a specific point in time.

Cash Flow

Covering investing, operating, and financing activities, the cash flow statement will showcase cash spent or generated during a period of time.

Changes in Equity

After dividends are shared with stockholders, the statement of changes in equity will show what a company has in retained earnings. It’s a useful report that impacts the stock price.

KPI Dashboard

For an easy way to review financial health and aspects of business, a KPI dashboard can be customised to include charts, graphs, and tables that showcase factors like: Working Capital, Budget Variance, and Cash Conversion Cycle, to name a few.

CFO Dashboard

A CFO dashboard delivers a high-level overview of essential fiscal metrics and economic trends. As a decision-maker and CFO, having the ability to review metrics like the Berry Ratio or employee satisfaction will boost your ability to drive the company forward.

‍

Why Use Report Automation?

Report automation makes it possible to have the answers at your fingertips at every moment with a boosted confidence in the accuracy of the information.

What is Reporting Automation?

Reporting automation will update your financial reports at designated intervals in time and send them to the necessary stakeholders, both internally and externally. Rather than a human needing to process reports, the software will ensure the accuracy of data and deployment of information.

Report automation most typically will leverage APIs so that it can collect relevant data from multiple systems and pull the crucial information together to create a succinct report.

Many automation solutions also provide your team members with the ability to add comments, notes, and messages into the emails and automated reports so that the receivers have adequate context.

Why Use Report Automation and What are the Benefits?

From the definition of reporting automation, it is already probably clear why it’s so beneficial. Compounding to the ability to lessen the workload on your team to increase efficiency, report automation benefits your organisation by:

• Centralising data: By pulling all data into one centralised system, your business’ financial information is organised and easily accessible.
  

• Enhancing reporting: Given the ability to access data from various systems, reporting is more accurate and data is up-to-date.
  

• Reducing errors: By lowering the need for manual data entry, there’s less chance of human error.
  

• Boosting employee satisfaction: Since your team can focus on high-level tasks rather than repetitive and mundane data entry, they can feel a greater sense of purpose and satisfaction in their day-to-day activities.
  

• Saving money: You can lessen the time it takes to create financial reports and perform financial data analysis, which will result in saved money.
  

• Increasing analysis: Since reports are automated, you can generate them more frequently to reap the rewards of more and improved analysis.
  

• Improving compliance: Reports can be set up to be sent to stakeholders and auditors when necessary, so you never run the risk of missing an important deadline.

Automation and Financial Close

Before the accounting cycle closes, businesses must perform financial close by reviewing and reducing account balances. At this point, and on the recurring basis, it must be determined that transactions and financial statements remain compliant with accounting methods and regulations.

Continuous accounting makes it easier to close the books each month through the implementation of automation solutions. With data in a centralised location, there’s improved accuracy of information and less time required to double check statements.

Additionally, auditors are able to pull audit reports and trails of data transactions, which makes it easier to deduce whether or not a company’s financial reporting is right or not.

‍

What is the Purpose of an Audit Report?

Since financial reports are created internally and used for both internal and external decisions, it makes sense that an independent third-party review the statements. This is what’s known as an audit report. The auditor provides an opinion after reviewing the financial reporting of a business to determine whether or not the information reflected is correct or misstated.

What is an Audit?

A financial audit is performed by a certified public accountant (CPA) or an internal employee to review the financial statements for accuracy. An auditor’s opinion is either: unqualified, qualified, adverse, or a disclaimer of opinion.

Why is an Audit Report Important?

For publicly traded companies, audit reports are mandatory and conducted to protect individual investors’ best interest. Audit reports are also important for business leaders to ensure that their organisation is running as efficiently as possible. If there are errors in the financial statements, then business leaders know that they must alter their processes and improve their internal control mechanisms.

What are the Types of Audit?

As mentioned, audits  can be internal or externally conducted. The main types of audit include:

• External audits
• Internal audits
• Forensic audits
• Operational audits
• Internal Revenue Service (IRS) audit

What are the Types of Audit Risk?

Since there’s a chance for financial statements to have inaccurate data, every business faces audit risk.

‍

Audit risk can be calculated by the equation:

Audit Risk = Inherent Risk x Control Risk x Detection Risk

• Inherent risk: is the risk that naturally exist within any business due to the complexity of transactions or nature of business. It also includes external risks that are often uncontrollable, such as climate change or political turmoil.
  

• Control risk: refers to the risk that an organisation may not have adequate internal control systems or oversight mechanisms which could cause them to miss any material misstatements on financial statements.

• ‍Detection risk: is the risk that an auditor fails to detect material misstatements.

Advantages and Limitations of Audit Reporting

Audit reporting is the written statement reflecting an auditor’s opinion about a company’s financial statements and reporting. These reports are attached to a company’s financial statements and filed with the Securities and Exchange Commission (SEC).

Audit reporting can add credibility to a company’s financial statements, provide stakeholders with a boost of confidence or warning sign about their investments, deliver important information to parent companies about their subsidiary businesses, and help comply with regulations.

On the other hand, audit reporting has some limitations like  the fact that an organisation might limit an auditor’s access to sensitive data. Additionally, an auditor may be under immense time pressure to produce an audit report and fail to properly review all the necessary details.

This is where automation solutions like SolveXia can massively help both an auditor and company. With automation tools, auditors can easily review each record and data transaction as it's stored centrally in the software system. This makes it a more straightforward process and reduces detection risk.

‍

Why is Compliance Reporting Important?

Compliance reporting helps to ensure that your business is upholding all industry standards, rules, and regulations.

What is Compliance Reporting?

Compliance reporting works by pulling together information regarding how your business collects, controls, stores, and shares data internally and externally.

Since data is growing exponentially daily, the importance of compliance reporting is also increasing.

Benefits of Compliance Reporting

Compliance reporting adds peace of mind to your business.

While it’s impossible to have your pulse on every piece of business at every moment, automation tools that procure compliance reporting can make it feel like you do. With compliance reports, you can clearly see that operations are running smoothly. And, if they aren’t, you’ll be abreast of the situation and empowered to amend it.

If you conduct consistent compliance reports that keep showing desired results, then investors, creditors, and stakeholders alike will trust your business.

How Technology Can Help with Compliance Reporting?

Given the vast amount of data that compliance reporting uses, it can become a timely and painful exercise to complete. However, software automation solutions remove the challenges associated with compliance reporting.

Like with financial reporting and audit reporting, tools like SolveXia will gather all your organisation’s data in a single location. Not only does this mean that your data is verified, but it also removes the painful exercise of having to manually source data.

Furthermore, SolveXia will process your data automatically to create the report you so desire. With data visualisation and customisable reports, all the insights you need are readily available so that you always have a complete view of your business’ deepest and broadest inner workings.

Since regulations are constantly evolving, using automation solutions will allow your business to remain agile and adapt to updates in real-time. You can always alter processes or edit report structures to meet requirements.

‍

Final Thoughts

The importance of financial reporting, audit reporting, and compliance reporting can’t be overstated. As you have seen, automation solutions like SolveXia will deliver immense benefits to a business of any size. Our tool can be used to collect, store, and transform data that is used to automatically curate reporting of any kind.

With data in a centralised location and automatically managed, you reduce your risk of human error, maximise time, and will always have a clear overview of your business’ financial health, operational efficiency, and overall performance.