Difference Between Financial Reporting and Financial Statements

Key Difference – Financial Reporting vs Financial Statements

A business conducts a number of transactions and has many interested parties. The activities of the business become more complicated as it grows, thus a proper mechanism is required to govern such activities. The importance and requirement for transparency in financial activities in companies have increased due to many investors losing confidence in financial markets as a result of massive corporate scandals such as Enron and Maxwell Group.Financial reporting is the process of providing information to company stakeholders to make decisions and the financial statement is the outcome of the process of financial reporting.This is thekey differencebetween financial reporting and financial statements.

CONTENTS
1.Overview and Key Difference
2.What is Financial Reporting
3.What are Financial Statements
4.Side by Side Comparison – Financial Reporting vs Financial Statements

What is Financial Reporting

The main objective of financial reporting is to provide useful information for decision making. Businesses consist of a number ofstakeholdersthat have different levels of power and interest in the organisation. They require information at regular intervals in order to make various decisions.

例如投资者要求的信息作出决定ns about acquiring or divesting shares. Governments require information to ensure that the company pays tax on time.

Financial Reporting Governing Bodies

Basically, different countries may have local financial reporting bodies that govern and specify reporting requirements. However, the differences between investment markets are diminishing fast and a standardised approach to financial reporting is appreciated.

International Accounting Standards Committee (IASC) was established in 1973 and introducedInternational Accounting Standards (IAS)that cover many aspects of business reporting requirements. In 2001, IASC was restructured to become theInternational Accounting Standards Board (IASB)and the standards introduced after that were namedInternational Financial Reporting Standards (IFRS). The globalcapital marketsand the interdependent world economies have resulted in the development of IFRS standards and many countries have adopted them to conduct financial reporting.

The IFRS provides guidelines to be followed with regard toassets, liabilities, equity, incomes and expenses and how to recognise them and their relevant accounting treatment. This makes the reporting process transparent and more reliable.

E.g. IFRS 5- Noncurrent assets held for sale and discontinued operations

IFRS 16- Accounting for Property, Plant and Equipment

What are Financial Statements

Financial Statements are prepared for an accounting period, generally for a year. This accounting period is referred to as a ‘fiscal year’ and differs from a calendar year since the accounting period may differ based on company needs or industry practices. For example, the fiscal year ends in January for many retail sector companies due to the high sales volumes experienced at the end of the calendar year.

There are 4 principal Financial Statements.

Statement	Important components
Statement of Financial Position(Balance Sheet)- reflects the assets, liabilities, and equity of the business as at a single point of time	Current assets Non-current assets Equity Current liabilities Non-current liabilities
Income statement–reflects the incomes and expenses for the accounting period	Revenues Expenses
Cash flow Statement– reflects the movements cash over the accounting period	Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities
Statement of changes in equity– reflects thechangein owners’equityover the accounting period	Dividends Issue of shares Income transfer to retained earnings

Financial Statements Preparation Process

The preparation of financial statements is a lengthy, time-consuming and costly process. However, it is mandatory for all companies to prepare the financial statements for the benefit of the shareholders and other involved parties.

Auditing financial statements

The fundamental purpose of the audit is to provide independent assurance that management has, in its financial statements, presented a “true and fair” view of a company’s financial performance and position. Financial statements will not be ‘true and fair’ unless the information they contain is sufficient in terms of both quality and quantity to satisfy the expectations of users of the financial statements. Areas where management can improve internal controls can be identified by conducting a comprehensive audit.

What is the difference between Financial Reporting and Financial Statements?

Financial Reporting vs. Financial Statements
Financial reporting includes providing information to stakeholders to make decisions.	Financial statements are the outcome of the process of financial reporting.
Governance
It is governed by the International Accounting Standards Board (IASB).	It is governed by the International Financial Reporting Standards (IFRS).

Reference: