It is the company’s records relating to financial activities. It is prepared by the management of the company. It is also called as Financial Report.
It is prepared to provide the information on the activities carried out by the entity to the financial statements users.
Users include Shareholders, managers, creditors, employees, banks or other financial institutions, government departments, investors etc.
Financial statements must be:
In simple words, we can say financial statements should only provide true and fair information about its company’s financial activities (IASB, 2017).
Financial statements are useful to many people. These are:
Managers and owners of require financial statements so that they can take business and economic decisions effectively and efficiently.
Shareholders require financial statements so that they can take investment decisions that is to knowwhether it is beneficial for further investment or not.
Employees require financial statements because to know whether it is beneficial for them to remain in the company or not.
Creditors require financial statements to know about company’s creditworthiness.
Banks and other financial institutions require financial statements so that they can know about company’s repayment status, creditworthiness status and whether it is beneficial to them to grant loan or debt securities (IASB, 2017).
Financial Statements are required so that it can be audited by the auditing firms or by an independent accountant to provide opinion on its statements whether they represent true and fair view or not. Auditor’s report is to be reported under company’s annual report.
Financial Statements have to be prepared as per prescribed guidelines such as United States prepare financial statements as per US GAAP (General accepted accounting principles), Australia, Canada etc. prepare financial statements as per IFRS (International Financial Reporting Standard).
Annual report shall contain the overall performance of the company including its future goals and strategies. It also contains the financial statements.
Earlier it was created on hundreds of pages but today it is prepared electronically in PDF or HTML file. Nowadays, XBRL format is mandatory for the submission of its financial statements.
International Accounting Standard Board.(2017).Preparation of Financial Statements. retrieved on 12 April 2017 from https://www.iasplus.com/en/standards/ias/ias1.
International Accounting Standard Board.(2017). The framework for the preparation and presentation of financial statements. retrieved on 12 April 2017 fromhttps://www.iasplus.com/en/standards/other/framework.
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