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Annual report basic purpose is to provide financial information to the relevant stakeholders of the company.
It is considered as the prime source of communication between the company and their respective shareholders. Shareholders are not entitled to view the books of financial accounts. Financial statements are the summarized version of company books of accounts which are accessible to the shareholders and other relevant stakeholders.
To get a grip on the future perspective of the company, this component of the annual report is considered as the most useful aspect of the annual report. All remaining components of the annual report comprised of historical transactions and events which happened over the year. Chairman’s speech and Directors report are the only components with the risk assessing approach towards the business prospects of the business. This helps the annual report user to analyze the future opportunities and growth potential of the business. Though certain portions are unaudited yet it is one of the most useful information in the annual report.
Auditor’s reports even if unqualified can be an extremely useful element to judge the financial reporting of a company. Often emphasis paragraphs cover the concerning issues which can significantly impact the decision-making process of the financial statement users.
If the report is qualified it states the reason of qualification and why auditors believe that financial statements fail to present the true and fair view of the economic circumstances of the business.
A balance sheet prepared at a certain date present assets, liabilities and equities pertaining to a certain company. Accountants prepare balance sheet on the categorized basis, dividing into current and non-current heads depending on their maturity dates.
It contains summarized detail of categorized business transaction and their impact on the profitability of the business. The income statement is prepared to pertain to a certain period. Accountants classify the elements into revenue and costs categories and profit is the net of both categories.
Statement of cash flow states the movement of cash through the organization in a categorized manner. Majorly there are three segments of the cash flow statement. Operating cash flow pertains to the operations of the company. Investing and financing pertain to the cash flow movement pertains to the investment and financing of the company.
Notes stated underneath the financial statements of the company states the policies and details of the financial statements of the company. It begins by stating the standard being used for a particular item of the financial statement. Further, it provides breakups and details of each of the elements of the financial statement. This is a source of betterment for the understanding of the annual report users.
Every field has developed best practices overtime which has minimized the risks associated with that particular field. Financial reporting pertains directly to the cash and finance which makes it most risky department of the organization. Development of certain best practice has enabled minimization of the risk of errors and embezzlements in the organization.
Preparation of annual reporting is an extensive process. It requires significant resources and attention from the organization in order to deliver an annual report on time. Planning and monitoring the performance regularly helps the organization to meet tight deadlines and deal with the uprising contingencies during the entire process. A project approach can help the organization to ensure the project is completed on time within the allocated resources.
Every business entity prepares financial statements for a different set of users. Best practice is to assess the possible audience for the financial statements and tailor make the annual report to match their needs in the best way possible. An annual report which matches the exact needs of the user is more user-friendly and helps the user to determine better platform for the decision-making process.
Often business entity prepares financial statements for various users. The company needs to balance out and prepare an annual report which takes into account all the stakeholder needs and treats all of them on a fair and equal level without any prejudice.
Identify and anticipate the internal users’ needs as well that can help them to use financial information in strategic decision making.
Interactive annual report ceases the opportunity of using technology for better presentation of the financial information. Various uses of software have enabled the accountants to develop graphical and interactive click to view functions to improve their financial reporting experience.
One of the best practices is time adjustments in the books of accountants to avoid missing major accounting entries in the future. Timely calculations on monthly or even weekly basis can help the accountants to keep track and monitor if there is something in the financial information for a particular period.
Internal audit is a broad term but with reference to the financial reporting internal audit helps to improve the accuracy of the financial reporting process. It helps to identify weakness in control which could lead into misstatements in the annual report.
Internal audit branches can assess the non-financial processes as well which can have an impact on the financial information at some point in time. Strengthening of these processes can ensure and improve the accuracy of financial reporting overall.
Financial reporting has introduced a new concept of segment financial reporting. There are particular standards which compel the organization to report their financials by reporting in segments.
Limited liability Company which is listed in the stock market is more compelled to adopt this practice. Best company formation services in UK By Weaccountax are also providing financial standard consultancy services as well to ensure that in case of formation, company continues to comply with the applicable financial standards
From the introduction of ERP to the field of financial reporting, automation seems to be an excellent option to delegate most of the manual work. IT controls inbuilt in ERP accountancy software can link the financial transaction recording directly to various processes of the company and improve the accuracy of accountancy.
An organization is exposed to various legal and international compliance which need to be met in order for the company to remain operational. There are plenty of compliance which pertains to the financial reporting standards. Accountants take into account various tax laws and compliance matters on regular basis. They ensure that financial books show the effect of each applicable standard.
Financial information is most meaning when there is a sense of comparability in the information. Most often users compared financial data with the past performances of the company. Accountants report one-off transactions separately in the notes to the accounts to improve comparability between the periods.
To improve the comparability with the competitor, it is important that the financial information of the suitable competitor is available. Often it is difficult to find a suitable competitor in the first place. If found, the financial information of the competitor is not available because businesses are very discrete when it comes to their financial information.
To enhance the comparability globally, financial standard-setting organization are working to harmonize the entire reporting world.
Business owners discretely protect their financial information and expect others to do so as well. Since the dawn of technology, the financial information has shifted from the manual papers to the software and computers. Technology is more prone to theft because of a high risk of hacking etc. Software and IT experts maintain various firewalls and protection services to ensure the integrity of the information remains intact and confidentiality stands.
Most of the organizational control failures are detectable in the financial statements of the company. Modern accountants consider best practice to anticipate and raise the issue to the higher management to resolve the issue in order to minimize the damage.
In short, the list best practices seems complete but it will continue to evolve as per the needs of the field.