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Financial reporting and regulation
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Accounting
Introduction
The financial information is a very important matter in a company success. Allow them to see if they have been successful in the past, in the present and help them to predict a future performance of you company.
The form, the use and the people involve with the financial and accounting information in a company is going to be developed in this report.
Accounting
Knowing the status of your company in every single area will allow you to improve your performance and developed strategies with a solid background for a successful operation. In the financial department of every company different kind of data and report to provide the information needed is used. Without that information financial manager, investors and bankers would be flying blind (Block, Hirt 2005). Those are not all the groups of interest about the financial information; we also have the government (for taxes purposes), general public (for investment opportunities), the competition and the operational areas to determinate their performance.
In finance there is three basic kinds of financial statements, the income statement, the balance sheet, and the statements of cash flow.
The income statement is made for measuring the profitability of a firm over period of time. Inform how revenue is transformed into net income and show whether the company made or lost money during this time. Income statement should help investors and creditors determine the past performance, predict the future performance and assess the capability of generating future cash flows. That information and other non financial data (like the company goal or the marketing strategy) will help the financial manager for instance to determinate how much money should the co...
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.... New York: McGraw – Hill.
[2] Williams, Jan R.; Susan F. Haka, Mark S. Bettner, Joseph V. Carcello (2008). Financial & Managerial Accounting. McGraw-Hill Irwin, p. 40. ISBN 9780072996500.
[3] Block, Hirt (2005). Foundations of financial management, Chapter 2 (11th ed). New York: McGraw – Hill.
[4] Peter Elstrom , July 8, 2008 http://www.businessweek.com/magazine/content/02_27/b3790022.htm
[5] “Presentation of Financial Statements", Standard IAS 1, International Accounting Standards Board. http://www.iasplus.com/standard/ias01.htm. Accessed March 24 2008.
[6] "The Framework for the Preparation and Presentation of Financial Statements" International Accounting Standards Board. http://www.iasplus.com/standard/framewk.htm Accessed March 24 2008.
[7] “Purpose of financial statements” http://en.wikipedia.org/wiki/Financial_statements. Accessed March 24 2008.
Financial records are very important aspects to any corporation and making sure the records are accurate is essential. Determining how a corporation is going to do is a guess but it is based on previous year's financial statements and that is a reason finical records are so important. Making a profit is a goal for any corporation.
The collection of these three financial statements identifies the financial position of the corporation to help identify the way forward financially for the company. Once all of the data has been collected for the annual reporting the corporation can analyze the data through the different financial ratios including the liquidity ratio, the asset management ratio, and the profitability ratio.
Moreover, it has to contain any information that helps investors to make their decisions. • Accurate Records and Accounts We believe that business and financial records are necessary to our business operations. We depend on the integrity and accuracy of those records to make our decision and the benefit of investors. Also, the records it is important to report government agencies and others whom the company report to.
The statement displays the relationship of the net income to the changes in the cash balances. It is important to understand that cash balances can wane despite an increase in net revenue (Horngren, 2014, p. 674). The statement also aids in the evaluation of management’s use of cash and management’s generation, defining a company’s capability to pay dividends and interest to pay debts when the time comes to pay them, and forecasting upcoming cash flows (Horngren, 2014, p. 674). The balance sheet displays the status of an entity at a specific time. Contrary to the balance sheet, income statements and cash flows cover periods over time.
One way to measure the success of a company is to examine, in depth, their financial history. Naturally, this includes all financial documentation past, present, and future. Setting goals and open communication in my opinion, can contribute to the financial success of a company. Without a strong team foundation, knowledgeable staff, and thorough accounting practices, I believe a company has no future. The choice of focus between managerial accounting and financial accounting can make or break a company.
Financial and Managerial accounting are used for making sound financial decisions about an organization. They provide information of past quantitative financial activities and are useful in making future economic decisions. (Albrecht, Stice, Stice, & Skousen, 2002) The same financial data is used to derive reports for each accounting process yet they differ in some ways. Financial accounting primarily provides external reports for external users such as stock holders, creditors, regulating authority and others. (Garrison, Noreen, & Brewer, 2010) On the other hand Managerial accounting is concern with providing information that deals with the internal viability of the organization and is tailored to meet the needs of an individual organization. (Albrecht, Stice, Stice, & Skousen, 2002)
According to the conceptual framework, the potential users of financial statements are investors, creditors, suppliers, employees, customers, governments and agencies, and the general public (Financial Accounting Standards Board, 2006). The primary users are investors, creditors, and those who advise them. It goes on to define the criteria that make up each potential user, as well as, the limitations of financial reporting. The FASB explicitly states that financial reporting is “but one source of information needed by those who make investment, credit, and similar resource allocation decisions. Users also need to consider pertinent information from other sources, and be aware of the characteristics and limitations of the information in them” (Financial Accounting Standards Board, 2006). With this in mind, it is still particularly difficult to determine whom the financials should be catered towards and what level of prudence is necessary for quality judgment.
The Purpose of Financial Statements The financial statements of a business are used to provide information about the status of the business, set performance targets and impose restrictions on the managers of the firm as well as provide an easier method for financial planning. The financial statements consist of the Profit and Loss Account, Balance Sheet and the Cash Flow Statement. There are four areas of information, which we can collect from a company's financial statements. They are: Ÿ Profitability - This information comes from the Profit and Loss account. Were we can compare this year's profit with the previous years.
The globalization of business has resulted in the need for compatible accounting standards that can be used internationally for financial reporting. As a result, the International Financial Reporting Standards (IFRS) were developed by the International Accounting Standards Board (IASB) to unify the various financial reporting methods and create a single accounting standard which can be applied to any financial statement worldwide (Byatt). The global standardization of financial reporting will increase the readability and enhance comparability of globally traded companies’ financial statements, without the need of conversion or translation. There are a few main differences between the International Financial Reporting Standards (IFRS) and the U.S. Generally Accepted Accounting Principles (U.S GAAP). The increasing recognition and acceptance of the International Financial Reporting Standards by accounting professionals in the United States, will affect the way in which the U.S will record financial statements in the future.
Business owners’ use at least four major financial statements to keep a grasps on their company 's finances during a specific time frame. Financial statements are usually completed monthly, quarterly, semiannually and annually. The major financial statements include the statement of cash flows, the statement of stockholder 's equity, the balance sheet, and the income statement. Each one provides a different awareness into a company 's financial status in the stated period.
Marshall, D., McManus, W., & Viele, D. (2004). Accounting: What the numbers mean. [University of Phoenix Custom Edition e-text]. New York, NY: McGraw-Hill Companies.
Each type of financial statement has their own objectives and purposes. Below has shown the purposes of each financial statement:
Income statement-: Income statement is the financial statement that measures a company 's financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities.
All accounting reports are shared by all levels of accounting managers. The management of the information which at the accounting department is one of the most important factors in determines the effectiveness and efficiency of the department. The information that gathers included the invoice, account document, payment, draft, banking document and etc. It is important to ensure the validity and the accuracy of the information that provided to the department.
Financial statements provide an overview of a business' financial condition in both short and long term. They help in understanding the past performance of the company and making future predictions about the company. It thus helps us to look beyond the profit figures.