Question

1. What pieces of information are available in a financial report? 2. Why do companies disclose these?

Answer 1

The Financial Report of a company comprises various information.

Basically the Financial Statements can be divided into 4 each of the information that can be attained from each of these 4 divisions are discussed therein.

1. Statement of Financial Position - Balance Sheet.

The balance sheet comprises of information regarding the present financial position of Assets, Liabilities and Equity, as on a given date.

The balance sheet helps us understand the overall financial structure of the entity as well, whereby we can make assumptions and understandings on the liquidity and overall financial position, based on the elements within the balance sheet.

2. Income Statement

The Income Statement is also called the profit and loss account and comprises of the incomes and expenditures and helps to drive the profit or loss of a business during a period.

It also helps us understand the return the business makes as per the actual concept.

3. Cash Flow Statement

Shows the movement of cash and bank balances during a period. It comprises of 3 types of activities, Operating, Investing and Financing. Each type of activity shows the net cash inflow and outflow from the activity and the total of each of these net cash flows will give you the total cash inflow/outflow of the entity.

4. Statement of changes in equity

A statement of changes in equity shows the changes in capital and ownership.

Why do companies disclose these

Companies disclose these due to multiple reasons, which are,

1. Legal Requirements : The companies are legally required to disclose and present the financial reports every year in most countries and not doing so can have severe.

2. Information to Stakeholders : Companies disclose these details to give information to Stakeholders who rely on the information given in the financial report for various purposes, such as making investment decisions, understanding liquidity, to get an understanding of profitability etc.

3. Information to taxation authorities : Taxes are computed and checked based on the information available in the Financial Reports, and Taxation authorities may ask you to submit the same for checking tax and to prevent tax evasion.