Financial reporting
How it works
There are legal requirements around financial
reporting to ensure that a company gives a full and
fair statement of its financial affairs. The company
must show its performance over the year or half
year, any significant changes to its financial position,
and whether it has made money or incurred liabilities
or losses during the year.
Two financial reports are usually issued per year—
the half-year report, and the annual report. For firms
that are publicly owned—i.e. their shares are traded on
the stock market—the annual report must be made
public and freely available for investors to read.
Companies usually publish a number of documents:
an annual report showing the firm’s activities during
the year; a balance sheet showing its current assets
and liabilities, and the working capital (difference
between the two); a statement of cash flows and
statement of stockholder’s equity; and financial details
on its website for investors. This information is used by
investors to keep track of the company’s progress.Financial reporting is when a company
publishes statements showing its assets
(what it owns), its liabilities (what it
owes), and its financial status. This
information is used by investors to
keep track of the company’s progress.Case study: balance sheet
This example, from a water company, shows
how a balance sheet works.Fixed assets
Intangible assets 0 0
Tangible assets 2 ,16 7.1 2,069. 2
Investments – –Current assets
Stock and work in progress 7. 0 6.3
Debtors 162.6 153.9
Cash at the bank and in hand 181.0 211. 0
Total current assets 350.6 371.2Creditors—amounts coming due within one year (198. 8) (171.7)Creditors—amounts coming due after more (1,891.5) (1, 811.9)
than one year
Provisions for liabilities and charges (114 .9) (115. 3)
Retirement benefit obligations (93.1) (83.0)
Deferred income (17. 2) (17.9)Stockholders’ equity
Issued share cap 81.3 81.3
Retained profit (or earnings) 120.9 159. 3Net assets 202.2 240.6Shareholders’ funds 202.2 240.6Net current assets 151.8 199.5Total assets less current liabilities 2,318.9 2,268.7ASSETS, LIABILITIES, AND CAPITALSYMBOLS FOR DEBITS AND CREDITS
Accountants use a number of different terms and symbols to
indicate debits and credits. Some use “Dr” for debits and “Cr” for
credits, others use “+” for debits and “–” for credits. On this balance
sheet, brackets are used to show credits (negative numbers).$A balance sheet is a snapshot of a company’s financial
position on one particular day. Although it is a good
guide to the financial health of a company, doctored
reports can, and in the past have been used to, hide large
debts or liabilities, and not reveal them to the auditors
who are checking the annual report or balance sheet.
Auditors may be alerted to fraud by a number of “red
flags” or warning signs—these could be anything from
negative cash flows that miraculously become positive
the following year, to sales registered before they have
been made, to an unusual rise in gross margin.WARNING
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