Financial Reporting Standards and Analysis
What is the financial reporting standard and analysis?
Financial Reporting
Financial reporting is a standard process of representing a company’s performance. It provided a complete and transparent view of the financial position of the company over some time to its stakeholders such as investors, creditors, and potential users of financial information. Proper and accurate records of revenue, expenses, cash flows, and profits/losses give the insight to make strategic business decisions.
Financial reporting standards
Financial reporting standards are guidelines for preparing financial reports for effective communication about financial standing. Financial reporting standards such as generally accepted accounting principles and International Financial Reporting Standards (IFRS) provide principles and standards for the preparation of financial statements and other crucial business information. It requires the companies to document all the financial and operating data in a way that is useful to the users of financial statements.
Financial Analysis
Financial analysis helps in evaluating the financial information of the companies through a metric called KPIs or key performance indicators. KPI in financial accounting helps to determine a company’s overall financial health.
Financial professionals use various reporting software powered by business intelligence and data analysis tools to provide insight based on a company’s financial statements.
The most common statements used for financial reporting are:
Income Statement: It is also known as a profit and loss statement. It reports the revenue, expense, and net profit or loss over a specific period.
Balance Sheet: It is the financial statement that reports a company’s assets and liabilities at a particular point in time. It is useful in figuring out the overall return on assets, net worth, and return of equity, working capital ratio, and debt-equity ratio. However, it provides a better view when aligned with other metrics.
Cash flow statements: It provides information regarding the cash inflows and cash outflows of the company for a specific period. It provides information regarding the proper management of the cash to meet the outstanding obligation, funds available for strategic investments, and cash available for meeting emergencies, etc.
Ways of Financial Reporting and Analysis
GAAP, IFRS, and GDPR are three financial reporting standards. Understanding these financial reporting standards may seem complex. Meru accounting can help in complying with these standards.
Generally Accepted Accounting Principles or GAAP: It is a set of accounting standards and principles for reporting financial data. It is compulsory by the law to provide transparency to users of financial information.
International Financial Reporting Standard or IFRS: It is a set of standards of financial reporting applicable to public companies, private companies, non-profit making organizations, and other entities that file financial statements with government bodies. International Accounting Standards Board (IASB) issues IFRS. IFRS helps make the financial reports issued in different countries comparable.
General Data Protection Regulation or GDPR: It is a European regulation that came into effect in May 2018. It modernizes the data privacy laws that protect individual information. It implies if you are handling sensitive financial information of any kind, metrics, or insights, you must ensure the reports are compliant.
