Question

Briefly explain how financial reporting is used in the world. Explain the following quotation: “There are events and then there are reports on events, and they are not identical.” Is there a "right" number for earnings (net income) for a given organization in a given period? On what does it depend? Briefly explain.

Answer 1

I) Financial Reporting:

Reportingis obligatory in any organization which is involved economic activities.

Uses: 1. Financial position(through Balance Sheet) of an entity and Performance of Business operations(Profit&Loss A/c) is evaluated with the help of F.R.

2. Sources of cash(Ex- Sales income, Borrowings, Other Income, Investments etc.) and the Application of cash(Purchases, Expenditure, Investments, Acquisition of properties etc.) is being tracked with the help of Cash Flow Statement.

3. Fulfils the statutory regulations.

4. Information is available to the 'stakeholders' of the company like Creditors, Investors, Government, Management etc. With the help of Financial Reporting.

II) Events-Reporting: Transaction is something which is involved by the exchange of money.

Whereas event is a result of a transaction which brings a financial change

Ex: i) Increase or Decrease in inventory.

ii) Change in the value of properties due to depreciation or amortization.

iii) Sales and Purchases

III) Events and Reports on events:

​​​​​​Reporting on Events occurs on/before/after the event took place. Here it is not assured that there is no difference between the events and reporting.

Reasons for the above statement

They're might be difference in estimates.

Occurrence of clerical errors.

Error in Principles of Accounting.

Involvement of Window Dressing etc.

By observing above points we can conclude that The Events and the Reporting on Events are not going to be identical in most of the times.