The Impact of Covid-19 on Financial Reporting and Accounting Practices

The Impact of Covid-19 on Financial Reporting and Accounting Practices

It often seems confusing to understand the differences between financial reporting and accounting while taking close notes on your business financials. And undoubtedly, the terrible impact of the COVID pandemic has blurred the line between those. But if you want to be updated about your business, you must know everything about financial reporting and accounting. So, let's explore them first, and then we will discuss the harsh impact of COVID-19 in this field.

What is Financial Reporting?

The process of accounting to gather financial data for a business is coined as financial reporting. Every company performs two types of financial reporting - internal financial reporting and external financial reporting. These two types of financial reporting have different purposes.

• Internal Financial Reporting:Senior management team of any company us internal financial reporting. It helps them to make decisions and be clear about their business objectives.
• External Financial Reporting:Tax authorities, trade partners, investors, etc., use a company's financial reporting. They use it to present more rigid requirements.

Types of Financial Statements

There are many types of financial statements that you need to understand. Here are a few examples. Let's have a look –

Income Statements

You have already seen that a balance sheet tracks the current financial activities of a company. But income statements monitor the financial occurrences throughout a year. For various companies, the income statement is similar to the profits-losses statements. It presents the actual revenue performance, income, and expenses of a business.

Cash Flow Statements

Companies use cash flow statements to evaluate their financial health of themselves, such as how their profits support their expenses. If you want to get a clear idea about the efficiency of your company’s current practices, spending natures, and revenue generation, then you have to go through the cash flow statements.

Balance Sheet

The balance sheet of a company shows you its records of total assets, liabilities, and equity. Most businesses track the balance sheet quarterly and use it to include data while creating yearly reports. But mainly, the use of a balance sheet is getting a real-time assessment of a company's current asset liquidity and debt coverage.

Why is Financial Reporting Important?

It's hard to comprehend a company's financial performance without financial reporting. Not only that, but also there are many other benefits of financial reporting. Here are they. Let’s have a look –

1. Make financial decisions

It's impossible to make crucial financial decisions without analyzing and comprehending the financial statements. Using financial reports, one can get ideas to identify trends and problems. Also, one can get real-time financial performance assessments through this report.

2. Manage debt

Business owners and the management get a clear insight into their current assets and liabilities through financial reports. Also, they can easily find out the way to manage their company’s outstanding debt.

3. Simplify taxes

Financial reports are needed to evaluate a company's net taxable income. And flawless financial reports help to eliminate the risk of error and save a lot of time. When you have a clear and accurate financial report, you get rid of all the complexities that come with the company's tax filing every year.

4. Compliance

Undoubtedly, an error-free financial report can help to enhance a business’s financial performance. And it also showcases that the company is legitimate.

5. Financial transparency

Outsider stakeholders should have an awareness of a company's financial condition before they decide to invest. And financial reporting helps a lot with that. It presents the integrity of a company's financial structure and helps to weave trust with investors.

What is Financial Accounting?

To make a financial report, you need to do financial accounting. It basically aims to gather a company’s financial information while preparing for financial reporting. And also, it keeps track of the business’s income and expenses.

Here are the major roles of financial accounting –

• It collects income and expense data.
• It manages a general ledger to keep the records of all transactions in one place.
• It generates the income statement, cash flow statement, and balance sheet.

Major Distinctions between Financial Reporting & Financial Accounting

Financial reporting and accounting share a strong bond, but still, there are various differences between financial reporting and accounting. Here are they. Let’s have a look –

Storing vs. Analysing

Financial accounting generates and keeps a record of a company’s financial data. Financial reporting will analyze those data in the future.

Compiling Information

Financial reporting compiles all financial data together. But financial accounting can’t do that.

Accounting Rules

If you want to run all your business accounts smoothly, you have to follow some significant rules while doing financial accounting. But if you take the rules lightly, the total calculation process will be disturbed. And you will get flawed financial reports.

Forecasting

Financial reporting mainly talks about the future finances of any business and also makes clauses on future spending. Finance accounting collects the information. And analyze all those data with reporting at the end of the year.

Also, there are a lot of differences between financial reporting and accounting's primary objectives –

The Impact of COVID-19 on Financial Reporting & Accounting

We all know and have faced the cruelty of COVID-19 and its challenging consequences. The rapid change of the situation due to the pandemic has hit certain industries and almost broken their backbones. And all these things have created an uncertain future for the world economy and financial markets. Needless to say, every company's financial reporting and accounting process have been severely damaged due to this. COVID-19 has interrupted the cash flow and the support of lending partners too. According to various reports, the world economy will take a lot of time to get back in shape. So, what we can do is wait and hope for better results only!

Final Thoughts,

You can see that the pandemic has changed everything. And now we are living in unprecedented times. Society and businesses will get back to their actual shape for sure, but we need to provide our collaborative effort. So, let's hope for the best!

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