financial accounting and reporting

financial accounting and reporting

The Importance of Financial Accounting and Reporting in Business Operations

1. Introduction to Financial Accounting and Reporting

Tremendous technological advances in search engines and document transfer allow for speedy access to an abundance of financial information on companies, government, and not-for-profit entities. Institutions like the United States Securities and Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), International Accounting Standards Board (IASB), and the Governmental Accounting Standards Board (GASB) provide guidelines to prepare these documents. The insight as to how and why accounting professionals prepare financial reports and why a well-organized system of preparing and recording these events is vital to operate and invest in an entity. Given the significance of financial statements, the crucial element is to utilize the outputs of financial accounting and reporting in a decision-making capacity. This is why accounting standards should provide decision-useful information to help accountants evaluate the financial status and future operations of entities.

Every day in business, investors, lenders, managers, and others use data prepared by accounting professionals to make important decisions. Those who use this vital information must also rely on the process used to prepare it. Reliable accounting information is generally the end result of a process. Decision-makers and preparers must understand what occurs in each part of the process. The goal of this process is to provide reliable, decision-useful information about economic activities of an entity, communicated through financial statements. The process usually starts with the identification and recording of relevant economic events. After capturing this information, accounting professionals then summarize and report it in aggregate amounts in financial statements. These statements are used as a basis to evaluate and communicate results to user groups. Their evaluation culminates in conclusions that ultimately influence future events for the decision-maker, which is the overall objective of financial accounting and reporting.

2. Key Principles and Concepts in Financial Accounting

Revenues are recognized when realized and expenses are recognized when incurred. Revenues and expenses should match on the income statement to reflect profit earned or loss incurred by the organization. The different recognition principles, such as a cash basis, accrual basis, and hybrid basis, can have major implications for financial decisions. Accrual basis recognizes revenue when realized or realizable and expenses when incurred or realizable, and is the most widely recognized basis.

The current cost principle states that accounting transactions should be recorded at the cost of purchase or fair market value at the date of the transaction. The value of assets reported on a balance sheet is based on the current costs of the resources representing the future benefits to be realized by the organization.

The financial reporting process begins with analyzing financial transactions arising from business changes in the accounting system. These transactions are then summarized, entered into accounting records, communicated in financial reports, and disclosed to financial statement users who use the information to facilitate organizational decisions.

A basic framework established by the Financial Accounting Standards Board for developing financial accounting statements is that they should be relevant, reliable, and comparable. To enhance reliability, accountants can use double-entry systems to verify that the accounting balance sheet maintains equity with total assets equal to total liabilities plus total shareholders’ equity.

This overview of financial accounting describes the key principles and concepts of accounting and the financial reporting requirements that organizations must follow. Key points include:

3. The Role of Financial Reporting in Decision-Making

– The allocation of resources to business enterprises, which are designed to influence the behavior of these business enterprises. This may include decisions to establish, continue, dispose of, or expand business organized entities, including partnerships or proprietary. The investors will need financial information about business enterprises before deciding to invest and, if so, determining the extent of their investment in terms of both the contribution to be made and the return expected on that investment.

The objective of users in making decisions depends on the type of decisions. Financial information used by external decision-makers in making various types of economic decisions is of great consequence to the needs of financial reports. Three major types of economic decisions that users of financial reports may consider as a basis for using financial information are:

All external users require some financial information to assist them in making economic decisions at varying stages of envision. The importance of financial reporting extends beyond the provision of financial information. It plays an indispensable role in the efficient working of modern commercial and industrial enterprises. Financial reports enable a wide range of users to make economic decisions about investing capital in a business. These decisions often involve a contribution to be undertaken, thus the outcomes of these decisions will affect the providers of the financial capital.

4. Regulatory Frameworks and Standards in Financial Reporting

IFRS is a set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements. IFRS is multilingual and is designed to be understood by all users of financial statements, regardless of their country of origin. In December 2008, the United States Securities and Exchange Commission (SEC) released a proposed roadmap for the potential use by U.S. companies of International Financial Reporting Standards. The roadmap identifies several factors to be analyzed before making a final determination of use. The Commission also decided that the proposed roadmap should be released for public comment only and that the Commission will make a final determination whether to incorporate IFRS into the financial reporting system for U.S. issuers in 2011.

– International Financial Reporting Standards (IFRS) – The International Accounting Standards Committee Foundation (IACSF) – American Institute of Certified Public Accountants (AICPA) – Financial Accounting Standards Board (FASB) – Governmental Accounting Standards Board (GASB) – Public Company Accounting Oversight Board (PCAOB) – European Financial Reporting Advisory Group (EFRAG) – International Accounting Standards Board (IASB) – Securities and Exchange Commission (SEC) – Sarbanes-Oxley Act (SOX)

Various countries have created bodies or authorized existing organs to issue and set accounting standards and guidelines to move towards uniformity in preparing reports. The following are some of these international bodies or organizations responsible for issuing financial accounting standards, models, and guidelines:

5. Emerging Trends and Technologies in Financial Accounting

Improved computer-equipped hardware has permitted professionals to devise more sophisticated application programs to make the key financial accounting of business companies more efficient. Data generated by various internal and external influences in reports, which address important stakeholders, are essential for effective financial and operational judgments. The manner in which modern accountancy information is managed, retained, and shared has expanded in a technology-oriented world. These data are critical to the accounting techniques that fall under the purview of the industrial revolution 4.0. Preventing and eliminating accounting activities that can accept higher-speed machine processing than individuals can increase internal product quality and satisfaction of the key stakeholders. Enhanced analytical procedures, particularly in problem-solving in difficult environments, help practitioners. These data and their freezer elements are mostly derived from business processing systems in a typical company environment as financial accounting documents. The need for innovative reporting techniques for financiers, including a growing trend by stakeholders and community members interested in blockchain accounting alternatives, continues to intensify. Technologies for accounting and financial systems evolving can communicate more efficiently, accurately, and quickly both inside and outside the company.

Significant progress has been made in the area of financial accounting and reporting utilizing information technology, which ranges from small businesses to some of the largest organizations. This is one area where continuous improvements occur regarding the rapid changes and updated processing of accounting information as required by these organizations. These data on business decisions are quite sensitive as they affect the current members, outside stakeholders, and public organizations. The increasing importance of business organizations in their leadership roles in supplying information in both profit and government organizations is promising in the public interest. The purpose of this paper is to assess emerging trends and technologies in financial accounting.