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"Dreams should be seen with open eyes" is the moto of my life. I have done my schooling from The Assembly Of God Church School which groomed my personality and developed the person in me that I am today. The best part of school was when I became the head girl of school in class 12 because of which I learned to shoulder responsibilities. The charge of the student's council instilled in me the quality of being a good leader. I also learned the art of balancing different choices that is why I never over looked my academics and became the topper of my school with a 95% in I.S.C. examination. The best part was when I achieved student of the month award by Teen Telegraph. After class 12 I graduated from the top girls' college in Kolkata i.e. J.D.Birla Institute. Then I got through St.Xaviers College for my masters which was another achievement.
All these could not have been possible without the support of my family. They believed in me that I could come so far. They still have high hopes for me. I hope I could achieve those dreams for them. I want to be a very big entrepreneur, the one who could contribute to the society something in gratitude. I believe in living a simple but honest life. I hope that I benefit the society with the help of my education and contribute my part in building a better place to live in. I dream big and keep the faith and will in me to make all those dreams come true.
My hobbies are to listen to music, watch movies, drive, and travel. I like cooking in my leisure time. I love baking cakes. I also desire to own a chain of restaurants in my name. I have also worked as an article assisstant in a CA firm. I want to see myself having my own company 10 years down the line along with atleast one or two small food joint.
What do you mean Corporate Financial Reporting? How do the Companies report their results? Who are the users of financial reports?
MEANING OF CORPORATE AND FINANCIAL REPORT
Corporate Financial Reporting means communication of the financial information of the company or enterprise to the external world as well as to the company itself. There are two important aspects in the Corporate Financial Reporting process i.e. measurement of financial position and its disclosure.
Bedford conceptualises the Financial Reporting process as four technical steps which are as follows:
1. Perception of the significant activity of the accounting entity or in the environment in which the entity performs. Implicit in the traditional perception is the belief that financial transactions represent the significant activities.
2. Symbolizing the perceived activities n such fashion that a database of the activities is available that can then be analyzed to grasp an understanding of the interrelationship of the mass of perceived activities. Conventionally, this symbolization has taken the form of recordings in accounts, journals, and ledgers using well-established bookkeeping and measurement procedures.
3. Analysis of the model of activities in order to summarize the interrelationships among activities and to provide a status picture or map of the entity. Traditionally, this analysis process has been viewed as one of developing accounting reports to provide insights into the nature or entity activities.
4. Communication (transmission) of the analysis to users of the accounting products to guide decision makers in directing future activities of the entity or in changing their relationship with the entity. (Bedford)
The first two steps details the process of quantification of the entity's economic position i.e. the process of measurement and the last two steps covers the process of disclosure. Thus these two aspects are correlated and together they constitute Corporate Financial reporting.
In other words, financial reporting is helpful to present and interested equity shareholders, investors, lenders, and other creditors in making decisions in their capacity as capital fund providers. The financial report spreads knowledge about an enterprise's economic resources, claims to those resources, and the transactions and other events and circumstances that change them. The extent to which a financial report is helpful depends primarily on the qualitative attributes of the financial information which are as follows:
1. Relevance: Information is said to be relevant if it can impact the financial decision taken by an entity. If information is useful in drafting financial report then it is relevant otherwise not.
2. Reliability: Information is said to be reliable if it is error free, unbiased and can form the basis of decision making i.e. it represents those data and facts which it is suppose to.
3. Comparability: Information is said to be comparable when difference could be made out in entity's past financial report or different entity's financial report to achieve improvement and enable better representation of financial data.
4. Understandability: Information is said to be understandable if the users of the financial report are able to understand the information and frame economic decisions based on those data and facts.
THE WAYS IN WHICH COMPANIES REPORT THEIR RESULTS
As per ICAI, the companies report their results in the following steps:
1. Record operating data by debiting and crediting financial accounts.
2. Report accurate accounting statements at the end of each month, quarter, and year.
3. Prepare financial statements in accordance with corporate policies, industry practises and regulatory guidelines.
4. Ensure correctness and accuracy of financial statements.
5. Prepare financial statement which includes:
a) Balance Sheet ( or statement of financial position): Balance Sheet is a financial statement which shows the assets and liabiliteies of the company as on a particular date. Thus it is useful to the company in reporting its financial position and to the users of the financial statement in deriving information about the company's asset resources and capital position.
b) Profit and Loss Account (or statement of earnings or income statement): Profit and Loss Account is a statement of income and expense of the company for a particular period. It provides information about operating revenue and expenditure and ultimately tells whether a company is running in profits or not.
c) Cash Flow Statement (or statement of cash flows): Cash Flow Statement shows the inflow and outflow of cash in a company. Thus it helps in informing about the company's cash payments and receipts for a particular period of time.
d) Notes on Accounts: Notes on Accounts are additional information which the company provides so that the users of the information get complete, relevant and reliable information. These are used to make disclosures and provide foot notes. (Institute of Chartered Accountants of India)
THE USERS OF FINANCIAL REPORTS
The users of financial report can broadly classified into two catagories which are as follows:
(1) Internal Users- Internal users are those who are insiders of a company and by the use of financial report they help the company to improve. Few examples of internal users are:
(i) Management- It uses the financial report to look into its own performance to evaluate their results and overcome the errors, if any. They use the financial report to compare their own performance with their past performance and with that of other company's performance.
(ii) Board of directors- They use the financial information to assess the performance of the management. They use the information to see that whether the management is operating properly or not.
(iii) Employees- They use the financial report to make decision about collective bargainning contracts for demanding bonus or salary increase. They see that whether the company is running in profits or not and then base their demands regarding their salary.
(iv) Equity Investors/Shareholders- They use the financial report to jugde whether their investment is in safe hands or not, in other words, to know the financial position of the company. They see the financial reports to check that they get their returns in adequate amount as compared with the returns of other company.
(2) External Users- External Users are those who are outsiders of a company and by the use of financial report they gain knowledge about the company, its position, and its activities concerning others. Few examples of external users are:
(i) Prospective and interested investors- They use the financial report in deciding the fact that whether they should invest in the company or not.They base their decisions on the information provided in the reports.
(ii) Financial institutions- They use the information to check the credit worthiness of the company in which they have invested or have given loan and see that their money is in safe hands.
(iii) Customers and suppliers- They use the financial report to see the finanicial strength or weakness of the company to which they are associated. Thus they get a better idea of the company.
(iv) Media- The media uses the financial report to check whether the company is socially responsible or not and helps to bring into focus any scam into public's eye, if any.
(v) Government- It uses the financial report to keep a watch on the activities of the company i.e. it acts as a watchdog so that it can regulate all the financial and non-financial actions of the company. It also uses the financial report to ensure that the taxes paid by the company are accurate or not.
(vi) Credit Rating Agencies- They use the financial report for the purpose of rating the company depending on the riskiness, credit worthiness, liquidity position of the company
(vii) Competitors- They use the financial report to compare their own results with their competitors. They use this information to frame competetive strategies in deciding their plans and policies based on rival companies' financial results.
(viii) Financial analysts- Financial analysts such as fund managers, stock brokers, investment advisor use the financial report in order to suggest investment in particular company/s to their clients. They use the financial information to gather knowledge about the company/s in which their clients are interested so as to guide them whether or not to invest in the company/s depending upon its financial position.
CONCLUSION: Corporate Financial Reporting is not limited to information communicated through financial statements but also incorporate information provide through informal means such as press release, management predictions, etc. To sum up it is important to note that understanding the concept of financial reporting is esssential for proper and accurate accounting.