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.
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:
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.
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:
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.
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.
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:
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.
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.
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.
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.
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):
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:
The Generally Accepted Accounting Principles (GAAP) is the United States’ method for accounting and financial reporting.
The International Financial Reporting Standards (IFRS) is used by north of 110 countries globally, including India, China, Australia, and Canada.
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.
The main types of financial reporting cover:
The statement that includes a company’s assets, liabilities, and the owner’s equity, which make up the financial position.
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.
Covering investing, operating, and financing activities, the cash flow statement will showcase cash spent or generated during a period of time.
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.
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.
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.
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.
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.
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:
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.
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.
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.
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.
As mentioned, audits can be internal or externally conducted. The main types of audit include:
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
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.
Compliance reporting helps to ensure that your business is upholding all industry standards, rules, and regulations.
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.
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.
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.
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.
Data aggregation tools help you to make use of your data for the best business decision-making and analysis. Here are the top five tools.
Data cleansing helps to make sure that the data you use is relevant and accurate. Here’s our review of the five best data cleansing tools.