Financial reporting is the disclosure of financial results and related information to management and external stakeholders (e.g., investors, customers, regulators) about how a company is performing over a specific period of time.
Financial reports are usually issued on a quarterly and annual basis and include the following:
- Balance Sheet or Statement of Financial Position – reports on a company’s assets, liabilities, and owners’ equity at a given point in time, usually the end of a fiscal quarter or year.
- Income Statement or Profit and Loss Report – reports on a company’s income, expenses, and profits over a period of time, such as a fiscal quarter or year. This includes sales and the various expenses incurred during the stated period.
- Statement of Changes in Equity or Statement of Retained Earnings – reports on the changes in equity of the company during the stated period, such as a fiscal quarter or year.
- Cash Flow Statement – reports on a company’s cash flow activities, including its operating, investing, and financing activities. These are typically referred to as sources and uses of cash.
For publicly held corporations, these financial reports can be very detailed and complex. They typically include extensive footnotes, as well as a management discussion and analysis (MD&A). The notes provide details about each item on the balance sheet, income statement, and cash flow statement, including insights into the accounting method used.
Financial reporting for private and public companies must be performed in accordance with generally accepted accounting guidelines (GAAP). For example, US companies must report their results under US GAAP, whereas companies in most international markets report under International Financial Reporting Standards (IFRS). These accounting guidelines provide principles and rules that must be followed to ensure accuracy, consistency, and comparability in financial results.