Financial Reporting

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Information about Financial Reporting in free legal resources:

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Financial Reporting

Traditionally, the function of financial reporting was to provide proprietors with information about the companies that they owned and operated. Once the delegation of managerial responsibilities to hired personnel became a common practice, financial reporting began to focus on stewardship, that is, on the managers’ accountability to the owners. Its purpose then was to document how effectively the owners’ assets were managed, in terms of both capital preservation and profit generation.

After businesses were commonly organized as corporations, the appearance of large multinational corporations and the widespread employment of professional managers by absentee owners brought about a change in the focus of financial reporting. Although the stewardship orientation has not become obsolete, financial reporting in the mid-20th century is somewhat more geared toward the needs of investors.

Because both individual and institutional investors view ownership of corporate stock as only one of various investment alternatives, they seek much more future-oriented information than was supplied under the traditional stewardship concept. As investors relied more on the potential of financial statements to predict the results of investment and disinvestment decisions, accounting became more sensitive to their needs. One important result was an expansion of the information supplied in financial statements.

The proliferation of footnotes to financial statements is a particularly visible example. Such footnotes disclose information that is not already included in the body of the financial statement. One footnote usually identifies the accounting methods adopted when acceptable alternative methods also exist, or when the unique nature of the company’s business justifies an otherwise unconventional approach.

Footnotes also disclose information about lease commitments, contingent liabilities, pension plans, stock options, and foreign currency translation, as well as details about long-term debt (such as interest rates and maturity dates). A company having a widely distributed ownership usually includes among its footnotes the income it earned in each quarter, quarterly stock market prices of its outstanding shares of common stock, and information about the relative sales and profit contribution of its different industry segments.

More Accounting Entries

Accounting information can be classified into two categories: financial accounting or public information and managerial accounting or private information.
Read about Financial Accouting here
Read about Managerial Accouting here

Specialized Accounting

Of the various specialized areas of accounting that exist, the three most important are:

Auditing. Read about Auditing here

Income taxation. Read about income taxation here

Accounting for nonbusiness organizations. Read about accounting for nonbusiness organizations here

Financial Reporting

Traditionally, the function of financial reporting was to provide proprietors with information about the companies that they owned and operated. Read about financial reporting here

Accounting Principles

Accounting as it exists today may be viewed as a system of assumptions, doctrines, tenets, and conventions, all encompassed by the phrase “generally accepted accounting principles.”Read about accounting principles here

The Balance Sheet

Of the two traditional types of financial statements, the balance sheet relates to an entity’s position, and the income statement relates to its activity. The balance sheet provides information about an organization’s assets, liabilities, and owners’ equity as of a particular date (such as the last day of the accounting or fiscal period). Read about income balance sheet here

The Income Statement

The traditional activity-oriented financial statement issued by business enterprises is the income statement. Read about Income Statements here

Regulations and Standards in the United States

Until 1973, accounting principles in the United States had traditionally been established by certified public accountants. Read about Accounting Regulations and Standards in the United States

Source: “Accounting and Bookkeeping”Microsoft® Encarta® Online Encyclopedia

See Also

Bookkeeping in the World

Literature Review on Financial Reporting: Annual Reports

In the Encyclopedia of Public Administration and Public Policy, [1] Robert S. Kravchuk offers the following summary about the topic of Financial Reporting: Annual Reports: A comprehensive annual financial report (CAFR) is a general-purpose financial report that is comprehensive in the depth of its reporting detail, and which provides a full disclosure of the financial affairs of the reporting entity, beyond the requirements of generally accepted accounting principles (GAAP), and other applicable legal and contractual requirements. A CAFR is recommended but not required under GAAP. The CAFR is to be a general-purpose report, which means that its contents are intended to meet the needs of a broad range of users, including citizens, investors, credit rating agencies, other governments, oversight authorities, and other interested parties.


Notes and References

  1. Entry about Financial Reporting: Annual Reports in the Encyclopedia of Public Administration and Public Policy (2015, Routledge, Oxford, United Kingdom)

See Also

Further Reading

  • Global Encyclopedia of Public Administration, Public Policy, and Governance (2018, Springer International Publishing, Germany)

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