Corporate financial reporting is the process of preparing corporate financial reports. The corporate financial reports include the income statement, the balance sheet, the cash flow statement, and the statement of retained earnings.
It could be either presented at the month end, at the end of every quarter or at the end of the financial year.
Corporate finance reporting does not only display financial statements of businesses, but it provides an interpretation of financial information and highlights implementation of the financial policy.
An excellent financial reporting would reflect the accurate financial health of an organization. Firms can avoid unknown losses and investors would be able to make informed decisions.
It is also known as a profit and loss account. It indicates if the organization is generating revenue or suffering a loss.
It would be easier to identify key expenditures of an organization and key sources of revenue.
The balance sheet reflects the financial health of an organization at a particular point in time. It furnishes information pertaining to various assets and liabilities.
Cash Flow Statement
A cash flow statement lets us know the net cash flow related to operating, investing and financial functions. It describes the sources and applications of an organization’s cash.
Clarification of Financial Policies
Mega firms prepare financial notes and describe the financial policies in-depth (inventorypolicy, depreciation policy, debt terms and dividend policy) by using financial reports.
Corporate reporting would include integrated reporting, financial reporting, corporate governance, executive remuneration, corporate responsibility and narrative reporting.
Integrated reporting refers to linking an organization’s present decisions with the future projections; combining information pertaining to strategy, risk and performance.
Integrated reporting enables senior management of an organization to view issues with clarity, and convincingly explain their business decisions to the stakeholders.
At the foundation of the corporate reporting standard is the financial reporting standard. It consists of financial statements and complementary notes that conform with generally accepted accounting principles (GAAP).
The method by which firms are managed. The disclosure levels vary globally, but could contain information on board structure, audit, liability and relationships with shareholders.
The rewards executives receive (short-term and long-term) for achieving the organization’s strategic goals.
It includes the statement on an organization’s influence on society, vendors and the environment to provide enhanced value to various stakeholders.
Narrative reporting denotes all non-financial information that is presented along with financial information to deliver a comprehensive understanding of an organisation’s operations, its market presence, strategy and future opportunities. It comprises measured metrics for all these functions.
Effective reporting, management, auditing and corporate governance decrease the risks of investments and lending, thereby modifying the environments for viable and stable capitalistic development.
State-controlled enterprises play a vital role in several nations. A transparent and proficient governance would enable nations can enhance their service delivery effectiveness and decrease the economic problem.
A competent corporate financial reporting is crucial to safeguard the interests of various stakeholders. It is important for the consistency of financial markets, enable regional businesses to secure funds, contribute to an improved business environment and facilitate the amalgamation of regional firms in the global economy.
Availability of a consistent information framework for financial institutions would improve financial stability. Excellence in corporate financial reporting depends mainly on the strength of the institutional climate assisting them. This contains legitimate needs, educational structure, accounting practices, regulatory mechanisms, the process of delivering financial information and requirement for competent financial reporting.
The increasing interface in the global economy and the financial crisis have resulted in critical challenges that global stakeholders must resolve.
There is an awareness internationally of the requirement for an efficient global reporting standard. International Financial Reporting Standards (IFRS) delivered by the International Accounting Standards Board (IASB) is widely accepted across many nations.
Businesses – mega and small are battling for funds while financial institutions are taking a careful approach in making investments. Hence, it is increasingly critical for organizations to be transparent about their financial health and for governments to implement a robust regulatory scenario for corporate financial reporting.
At present, corporate reporting pertaining to environmental, social and governance (ESG) is a broad function, particularly among mega firms.
Challenges to an integrated global financial reporting standard:
Finance, Resources and Governance
The performance of an integrated global financial reporting standard (IFRS) relies on the confidence of global stakeholders. In order to assure them, a protected & a stable financing mechanism, resource availability and excellent governance are required to make sure there is no unwanted influence from different sectors.
Constant Acceptance and Regulatory Review
Several countries have acknowledged the IFRS. It is critical that IFRS is accepted by countries in a way consistent with those delivered by the IASB. This would enable a uniform international reporting system.
The success of IFRS would depend on an integrated approach by various stakeholders in the capital markets system. Significant investments would have to be made in training personnel, consolidating software platforms, and streamlining reporting processes to be in line with the IFRS.
Effective Capital Distributions
A distinct set of efficient international reporting standards would enhance the capability of organizations to secure funds while investors can access the global markets.
Improved transparency is vital for overall economic growth.
Safeguard Capital Markets
Global investments and amalgamation of capital markets would become easier between countries that implement the IFRS.
The implementation of global corporate finance reporting practices would bring substantial benefits for various stakeholders. It is an intricate process and a holistic approach is needed for it to succeed.
There are several concerns that have to be assessed to facilitate a smooth transition. IFRS is a continuously changing issue. Global companies have to be current with improvements pertaining to international accounting standards. A robust reporting standard would boost capital markets and economic development.
By Ralph Waldo
Ralph Waldo is an experienced freelance business and finance writer. Currently writing for Academy of Financial Trading.