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To begin with, financial reporting is mainly of two types: External and Internal. Reports are prepared for stakeholders (external) as well as the managers (internal) of the organization.
The different components of financial reporting are as follows:
1. The financial statements of a company- the income statement, balance sheet, cash flow statements, and the statement of shareholders equity.
2. The notes to financial statements
3. The quarterly and annual reports of a company
4. Prospectus
5. Management discussion & analysis
1. The financial statements
Income statement – The income statement of a company shows the revenues, expenses, net income, and earnings per share. It is the most important financial statement because it depicts the overall performance of a company.
Statement of financial position – It comprises a companies assets, liabilities, and equity.
Cash flow statement – A cash flow statement shows the monetary position of a company with the help of cash inflows and outflows during a particular financial period.
Statement of equity – This financial statement shows the changes in owners’ equity over a financial period.
2. Notes to financial statement
While recording and classifying the above mentioned financial statements in the books of accounts, the accountants have to maintain various notes to separately show the working. These notes comprise adjustments such as depreciation, interest, dividends, prepaid expenses, accrued income, etc.
3. The quarterly and annual reports of a company
These types of reports are usually prepared in the case of listed companies. These reports comprise the financial statements and their notes to accounts.
4. Prospectus
In terms of finance, a prospectus is a document that portrays the financial security of potential buyers. It is usually recorded in the financial reports of those companies that are going for IPOs.
5. Management discussion and analysis
The preparation of a financial report involves approval at all managerial levels and close analysis to avoid any kind of mistakes. However, this usually takes place in the case of public companies.