Evaluating the Effectiveness of Financial Reporting

The basic financial statements a company produces are not only for internal evaluation, but for the use of external entities like shareholders and creditors. Typically, these external users want to see a company’s balance sheet, income statement, statement of ownership and statement of cash flows.

To meet the requirements and expectations of these external users, it is recommended that financial statements be understandable, relevant, reliable and comparable. But in order to meet these requirements with excellence, one must evaluate the cost of doing so.

FIND SCHOOLS
Sponsored Content

Because it is easy to get into the habitual routine of producing and reporting financial information, management may not take the time to evaluate its actual effectiveness. For example, is the added benefit for the users worth the cost of preparation?

Additionally, consider only reporting the information considered material. In the accounting world, something is deemed material if the knowledge of it would influence a report user’s decision regarding the business. Only reporting material information may help eliminate an excess of information and the waste of time and money in compiling it.

It is also crucial to maintain the same accounting methods consistently year after year to financial statements. This assists users in comparing statements from previous years to adequately access changes in the company’s financial position.

Another addition to financial statements which greatly enhances their value is the notes. Reports of the amounts are not enough to paint an accurate financial picture. Notes to the financial statements are in fact required. Typically, the notes for public corporations are the most thorough and comprehensive.

Featured Programs:
Sponsored School(s)
Featured Bachelor Programs
SPONSORED SCHOOL(S)
Featured Masters Programs
SPONSORED SCHOOL(S)
Our site does not feature every educational option available on the market. We encourage you to perform your own independent research before making any education decisions. Many listings are from partners who compensate us, which may influence which programs we write about. Learn more about us.
Wiley University Services

©2023 https://www.accountingedu.org All Rights Reserved.