In the global economy, the growing demand for financial transparency has permeated all aspects of corporate operations, from the way a business prepares its accounting reports to the way it publishes them. Various groups, including investors and regulators, pay heed to when and how organizations prepare and publish financial statements.
The preparation of financial statements is a collective effort, an exercise in which top management rewards personnel who deserve credit for maintaining profitability and solvency. There are four financial statements a business must publish at the end of a period, such as a month or fiscal quarter. These include a balance sheet, an equity statement, a statement of profit and loss, and a statement of cash flows. By reading a company's balance sheet, senior executives can see how effectively financial managers administered the firm's money. Delving into the firm's income statement shows top leaders salespeople's prowess in generating revenue over the period under review.
Perhaps the most important aspect of financial-statement publication is that it hands investors the tools to understand an organization's memory. By revealing to the public what goes on behind corporate closed doors, senior management takes important steps to open the firm up for public scrutiny. Organizational memory deals with the way a company uses various items to prepare accurate financial data and publish accounting reports in a timely and consistent manner. Organizational-memory levers include a firm's products and services, mission statement, short-term goals and long-term plans, rank-and-file personnel, traditions and values.
Various groups delve into published financial statements to understand the basic factors affecting a firm's route to financial stability. Investors comb through accounting data to see profitability trends that really matter and assess the potential impact of cash flows on corporate liquidity. They also sift through financial statements to determine how effectively top leadership is navigating the ups and downs of the economy, as well as whether department heads are adequately articulating sound procedures for future profitability. Besides investors, groups who find financial statements useful include the public, regulators and competitors. Business partners -- such as vendors, lenders and customers -- also pay attention to corporate accounting reports.
In the corporate setting, publishing accurate financial statements has an occupational impact. Various personnel must work collaboratively to help a company show its best image, financially speaking. In essence, reporting financial data calls not only for analytical dexterity but also communication discipline and clarity of thought. The goal is to deliver an accurate message about the firm's financial situation in a clear, easy-to-understand manner. Professionals who help companies publish accurate accounting reports run the gamut from financial managers and accountants to investor-relations representatives, cost controllers and regulatory-affairs coordinators.
- Independent Mail; Income Statements Provide Tools for Better Decision-Making; Joe Sangl; May 2009
- Bookkeeping Essentials: How to Read The Income Statement
- New York University, Stern School of Business; Financial Statement Analysis; Aswath Damodaran
- Morningstar: Introduction to Financial Statements
- Accounting Coach; Balance Sheet; Harold Averkamp
Marquis Codjia is a New York-based freelance writer, investor and banker. He has authored articles since 2000, covering topics such as politics, technology and business. A certified public accountant and certified financial manager, Codjia received a Master of Business Administration from Rutgers University, majoring in investment analysis and financial management.