Financial reporting is basically the process of getting the financial statements of a business all gathered up, with an aim of being able to publish and produce a report that gives the overall position of the company financially. It is quite vital for all companies to be able to create and publish all the financial reports that are required, since these documents are quite essential in the running of the businesses. The financial statements will therefore help greatly in understanding how much money there is, where exactly the money comes from and the areas where the money will need to be redirected to, depending on the needs.
Importance of Financial Reporting
It is very critical for businesses to be able to report finances. This will go a long way in helping the business in various ways, in terms of how they get to manage their matters of finances. Alexander Djerassi particularly thinks that the process of financial reporting is quite critical to businesses because of the following reasons:
i)Helps in Making Financial Decisions That are Sober and Way Better
Whenever a business is in a position where it is required to make an important decision, then the analysis and better understanding of the financial statements will be required. The latter can only be successfully done through the process of financial reporting. While carrying out the financial reports, a company is able to better understand the financial trends and roadblocks that may be a potential hazard to their financial growth. By doing so, they can easily track their financial performance in a more practical and easier way.
ii)Helps in the Management of Debts
The financial statements that are given through the financial reports are able to give a more direct insight into the assets and liabilities that a company holds. This way, a more clear and efficient road map on how the business is able to manage its debts that are outstanding can be figured out, moving forward.
iii)Helps in Creating Financial Transparency
Another valid reason why Alexander Djerassi thinks that the financial reporting is quite vital, is because of the transparency it is able to create within the running of a business. In most cases, the external stakeholders may want to do research and find out about the financial position of a business. Through financial reporting, it is way easier for a company to be able to showcase their integrity and trust to their potential creditors and investors by being transparent.
iv)Helps in the Simplification of Taxes
The evaluation of the tax income of a company by the Internal Revenue Services is often made much easier by the availability of the financial reports. This process is often quite vital, since it’s a requirement by the law. Because of this, the accuracy of the financial reports often make it easier in doing away with any potential errors that may occur, hence saving greatly on time. This way, all the burden that may potentially come along with the tedious procedures of having to file the taxes for the company every year, is greatly avoided.