Introduction to Financial Reporting Examples
Financial reporting is the summary of the performance of concern over a given period of time. The end reporting could be a look into the day to day working, position of assets and liabilities at a particular point of time, the cash flow and positions over the course of a period or any other such analysis as the case may be which is required by the interested parties to the concern.
Given, the vast coverage of the scope of this reporting, below are mentioned some of the examples describing the various forms in which the reporting exists.
Examples of Financial Reporting (With Excel Template)
Let’s take an example to understand the calculation of Financial Reporting in a better manner.
Example #1 – Balance Sheet
A balance sheet reports the financial position of an entity as on a particular date. These are generally prepared at the end of the financial year i.e. 31st March or 31st December depending on the custom followed in a particular country. The balance sheet typically reports the following three classes
- Assets – These are a measure of the resources owned by the concern. These help in creating future value and enabling revenue and inflows of funds in the coming time. The assets exist both in tangible and intangible form and some of the items depicted in it might refer to the receivables from external parties.
- Liabilities – These depict the resources owned by the concern in financial terms. The concern needs to settle this sometime in the future to continue running the business in a healthy way. Non-fulfillment of such liabilities beyond a period of time would lead to loss of reputation, penalties, and ultimately a shut-down of the business. These exist primarily in two forms, those that will be settled within 12 months referred to as short term liabilities, and those that will be paid after a duration of 12 months called long term liabilities
- Shareholders Equity – It is a measure of the amount the concern owes to its owners or shareholders. It will be equal to the difference between the assets and the liabilities the concern owes to external parties. It consists of equity capital, preferred shared capital along the earnings that have been retained to be utilized in the business.
Below is an example of a balance sheet of entity A which has just started with its operations
Example #2 – Notes to Financial Statements
The face of the financial statements (balance sheet, income statement, and cash flows) summarizes the activities performed in the year in financial figures, however, it is important to understand the accounting principles, policies, and assumptions under which they are prepared. Notes to accounts fulfill this purpose. Some of these notes are required compulsorily by the accounting board governing standards under which the financial reports are prepared while some of the notes are prepared to aid understanding and give an explanation for the items mentioned in the statements.
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Usually, the following notes to accounts are present
- Accounting policies – It lists the important accounting principles that are followed like revenue recognition, depreciation, inventory method, evaluation of intangible assets, foreign currency fluctuation, etc. These are important to understand in trying to make sense of the information that is provided in the statements. Different numbers would be plotted if different principles are instead followed. Also, if there is any change in the method from previous periods, that has to brought to the attention of the stakeholders along with the impact thus induced.
- Fair value measurements – All items that are susceptible to fair value treatment (e.g. investments) would be mentioned here along with the values followed among the choice between historic and fair value.
- Mergers & acquisitions – any transactions relating to the merger between the reporting entity and any external party is expounded here along with the details of the deal
- Contingencies – Any potential liability that could materialize in the future is mentioned here along with the impact. Also, any litigations against the company that could potentially induce penalties or fines are summarized.
- Exceptions – any event beyond the scope of normal business activity that needs to be communicated to the stakeholders is lineated here. Usually, these are events that could potentially affect the working of the entity in the upcoming years.
Example #3 – Management Discussion & Analysis (MD&A)
This is a section in the annual report following the financial statements and notes to accounts that is an explanation of the events that have conspired during the reporting period from the management to the stakeholders. It lists down causes for the performance of the entity, what were the major factors that affected the growth in the current period, how the performance measures against that of its competitors and the outlook towards the future. This is an unaudited section of the annual report.
The following are the functions of this section
- Commentary on the performance of the entity, the compliance with the law and regulations, and the major changes that impact its growth in the reporting period
- It lists down the current risks affecting the entity and the industry in general, the controls that have been taken to evade such risks, and the new projects/plans for the future
- It mentions the major capital expenditures that took place, the liquidity position, and the management plan for any future intake of debt or issuing of equity.
- It explains the critical accounting policies and estimates and how changes in them have affected the concern
Conclusion
Financial reporting is the vital cog in the wheel of understanding the operations and position of a concern. Although the major forms of reporting like the financial statements ensure the operations are adequately captured it is essential that the reporting also makes way for the understanding and readability of such figures. Recently, therefore a lot of emphases have been put on the notes to accounts and such functional parts.
It is important that the reporting captures the major attributes of the functioning without being vague or overly complex. Given the high importance that is placed on its shoulders, financial reporting and those that are involved in its orientation have a big responsibility towards the stakeholders.
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This is a guide to the Financial Reporting Examples. Here we discuss the introduction and practical Example of Balance Sheet, Notes to Financial Statements, Management Discussion & Analysis along with detailed explanation and downloadable excel template. You can also go through our other suggested articles to learn more –
