A financial report is the way a business communicates important data about its performance and health to internal and external stakeholders. This data usually includes a balance sheet, income statement and cash flow statement with supporting notes and management’s discussion and analysis (MD&A). It is an essential part of accounting for most companies and must be in compliance with rules set by regulatory agencies, including the U.S. Securities and Exchange Commission (SEC).
External stakeholders use financial reports to evaluate a company’s current and potential financial health. They are especially interested in a company’s profitability, which is determined by comparing revenue and expenses with assets and liabilities. Financial reports can also help attract investors, establish creditworthiness with creditors and improve relationships with partners, customers and suppliers by demonstrating a company’s efficiency.
Internally, finance teams rely on the information provided by financial reports to drive efficiency across departments and analyze trends and predictions. Having access to timely, accurate financial data helps departments and teams connect with the rest of the business, make more informed decisions, stay ahead of competition, identify risks and take advantage of opportunities.
The process of creating a financial report starts with collecting and organizing all the necessary data. This may include transactional information, such as sales invoices and purchase orders, a summary of the current balances in all asset, liability and equity accounts, and the beginning and ending accounting periods for the reporting period. Then, the accountant prepares the financial statements in accordance with an accounting framework such as Generally Accepted Accounting Principles or International Financial Reporting Standards.