1.
**Purpose:**
- Financial accounting reporting provides a systematic summary of a company's financial
transactions, performance, and position.
2. **Key Components:**
- Balance Sheet: Presents a snapshot of the company's assets, liabilities, and shareholders'
equity at a specific point in time.
- Income Statement: Shows the company's revenues, expenses, gains, and losses over a
period, resulting in net income or net loss.
- Cash Flow Statement: Tracks the inflows and outflows of cash and cash equivalents during a
specific period, categorized into operating, investing, and financing activities.
- Statement of Changes in Equity: Details the changes in shareholders' equity over a period,
including contributions, distributions, net income, and other adjustments.
3. **Accounting Principles:**
- Generally Accepted Accounting Principles (GAAP): Set of standard accounting principles,
standards, and procedures established by the Financial Accounting Standards Board (FASB) in
the U.S.
- International Financial Reporting Standards (IFRS): Global accounting standards issued by
the International Accounting Standards Board (IASB) for the preparation of financial statements.
4. **Financial Reporting Process:**
- Recording Transactions: Initial entry of financial transactions into the accounting system
using double-entry bookkeeping.
- Adjusting Entries: Periodic adjustments made to ensure accurate recognition of revenues,
expenses, assets, and liabilities.
- Preparation of Financial Statements: Compilation of financial data into the required formats,
including balance sheet, income statement, cash flow statement, and statement of changes in
equity.
- External Audit: Independent examination of financial statements by external auditors to
provide assurance on their accuracy and compliance with accounting standards.
5. **Regulatory Compliance:**
- Securities and Exchange Commission (SEC) Regulations: Oversight of financial reporting for
publicly traded companies in the U.S., including disclosure requirements and filing deadlines.
- International Accounting Standards Board (IASB): Oversees the development and adoption
of IFRS for companies operating internationally or listed on foreign exchanges.
6. **Financial Analysis:**
- Ratio Analysis: Evaluation of financial performance using key ratios such as liquidity,
profitability, solvency, and efficiency ratios.
- Trend Analysis: Examination of financial data over multiple periods to identify patterns,
trends, and changes in performance.
- Comparative Analysis: Comparison of a company's financial performance with industry peers
or benchmarks to assess relative strengths and weaknesses.
7. **Disclosure and Transparency:**
- Notes to the Financial Statements: Supplementary information providing additional details,
explanations, and disclosures necessary for a complete understanding of the financial
statements.
- Management Discussion and Analysis (MD&A): Management's narrative discussion of the
company's financial condition, results of operations, and future prospects.
8. **Continuous Improvement:**
- Regular review and update of accounting policies and procedures to reflect changes in
business operations, accounting standards, and regulatory requirements.
- Feedback mechanisms to incorporate stakeholder input and address areas for improvement
in financial reporting practices.
