Essay: Importance of Financial Reporting

Sample Essay

Financial reporting is an important aspect in modern business. It development has been part and parcel of the growth of business and commerce around the world. As the global economy grows and we see newer and bigger multinational corporations emerging and competing businesses spreading around the world, the need for the development of accurate and transparent financial statements for public limited companies is increasing. This has been highlighted by the numerous financial reporting scandals that have arisen lately that have had national and international repercussions.

To understand the importance of this unique field, one needs to understand what financial reporting does. The job of financial reporting is to give an overview of the short and long term financial position of a company. This is done by producing the Balance sheet, which provides a picture of the company at a point in time, the Income Statement which gives an account of the business’s performance during the year in terms of revenues and expenses, the Cash flow Statement which presents the cash inflows and outflows from the company divided into operating, investing and financing activities and finally the statement of changes in equity which basically explains the change in a retained earnings of the company during the financial year (Graham 2005).

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