usefulness of financial reports to management
The rapid changing business practices in the corporate world have also changed the perception and usefulness of financial reports. Traditionally, the financial reports were prepared and presented only to address the outside interested parties such as shareholders, creditors, government departments, etc. Today, the importance of these reports stretch beyond the outside parties. Financial reports are being used by management to assess the current financial position of the business. Many a financial decisions are based on the analysis of the financial reports by the management. They not only help the management in decision making but also are a true indicator of the management’s performance and report on the deviations if any. The importance of financial reports do not end with the presentation of a rosy picture to the investors or the government but also in assisting the management to overcome any financial variances in the achievement of the organisational goals. Definition of Financial Reporting Financial reports are an annual record of all financial transactions explaining the current financial position of the business. ... They are of two types:- • General purpose financial reports or external financial reports are prepared for outsiders such as investors, creditors and debtors. These are parties who do not have control over the preparation of these reports. ... • Special purpose financial reports are prepared for users like the taxation department or government agencies and departments who require specific financial information about the business for specific reasons. Contents of a Financial report Statement of financial performance Statement of financial position Financial statements Statement of cash flows =Financial report Notes to the financial statements Directors’ report Directors’ declaration Auditor’s report Ref: Sims and Clift figure 4. ... Financial Reports in Australia are prepared according to the guidelines prescribed by the Financial Reporting Council.