Financial reporting

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1. External.

Financial reporting is traditionally external.

It is concerned with collating and providing information to external stakeholders, the financial markets and the public.

Contrasted with management accounting, which provides information for internal stakeholders.

The objective of financial reporting - International Financial Reporting Standards overview
The users of financial information need to assess:
  • Prospects for future net cash inflows to the reporting entity; and
  • Management's stewardship of the entity's economic resources.

Accordingly, financial reporting seeks to provide information about:
  • The entity's economic resources (assets), claims against the entity (liabilities) and changes in those resources and claims; and
  • How efficiently and effectively management has discharged its responsibilities to use the entity's economic resources.

External reporting is mandatory for all limited liability companies, regardless of who owns them.

However, smaller and privately owned companies do have relatively lighter (mandatory) reporting requirements.

All companies may choose to publish more than the minimum mandatory information.

Financial reporting is also known as financial accounting.

Limitations of general purpose financial reports
"... general purpose financial reports do not and cannot provide all of the information that existing and potential investors, lenders and other creditors need.
Those users need to consider pertinent information from other sources, for example, general economic conditions and expectations, political events and political climate, and industry and company outlooks.

General purpose financial reports are not designed to show the value of a reporting entity; but they provide information to help existing and potential investors, lenders and other creditors to estimate the value of the reporting entity...

Other parties, such as regulators and members of the public other than investors, lenders and other creditors, may also find general purpose financial reports useful.
However, those reports are not primarily directed to these other groups.

To a large extent, financial reports are based on estimates, judgements and models rather than exact depictions. The Conceptual Framework establishes the concepts that underlie those estimates, judgements and models."
IFRS - Conceptual Framework.

2. Internal.

The term 'financial reporting' is also used by some organisations in a broader sense, to include internal reporting (as well as external).

See also