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Financial Reportng

financial reporting in corporate governance

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khalid
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8 views

Financial Reportng

financial reporting in corporate governance

Uploaded by

khalid
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Financial Reporting is a very important and critical task of an organization.

It is a vital
part of Corporate Governance.

Definition of Financial Reporting:


Financial Reporting involves the disclosure of financial information to the various
stakeholders about the financial performance and financial position of the organization
over a specified period of time. These stakeholders include – investors, creditors, public,
debt providers, governments & government agencies. In case of listed companies the
frequency of financial reporting is quarterly & annual.
Financial Reporting is usually considered an end product of Accounting. The typical
components of financial reporting are:

1. The financial statements – Balance Sheet, Profit & loss account, Cash flow
statement & Statement of changes in stock holder’s equity

2. The notes to financial statements

3. Quarterly & Annual reports (in case of listed companies)

4. Prospectus (In case of companies going for IPOs)

5. Management Discussion & Analysis (In case of public companies)

The Government and the Institute of Chartered Accounts of Pakistan (ICAP) have issued
various accounting standards & guidance notes which are applied for the purpose of
financial reporting. This ensures uniformity across various diversified industries when
they prepare & present their financial statements.

Objectives of Financial Reporting:


According to International Accounting Standard Board (IASB), the objective of financial
reporting is “to provide information about the financial position, performance and
changes in financial position of an enterprise that is useful to a wide range of users in
making economic decisions.”

The following points sum up the objectives & purposes of financial reporting –

1. Providing information to the management of an organization which is used for the


purpose of planning, analysis, benchmarking and decision making.
2. Providing information to investors, promoters, debt provider and creditors which
is used to enable them to male rational and prudent decisions regarding
investment, credit etc.

3. Providing information to shareholders & public at large in case of listed companies


about various aspects of an organization.

4. Providing information about the economic resources of an organization, claims to


those resources (liabilities & owner’s equity) and how these resources and claims
have undergone change over a period of time.

5. Providing information as to how an organization is procuring & using various


resources.

6. Providing information to various stakeholders regarding performance


management of an organization as to how diligently & ethically they are
discharging their fiduciary duties & responsibilities.

7. Providing information to the statutory auditors which in turn facilitates audit.

8. Enhancing social welfare by looking into the interest of employees, trade union &
Government.

Now let’s discuss few aspects about importance of financial reporting.

Importance of Financial Reporting


The importance of financial reporting cannot be over emphasized. It is required by each
and every stakeholder for multiple reasons & purposes. The following points highlights
why financial reporting framework is important –

1. In help and organization to comply with various statues and regulatory


requirements. The organizations are required to file financial statements to ROC,
Government Agencies. In case of listed companies, quarterly as well as annual
results are required to be filed to stock exchanges and published.

2. It facilitates statutory audit. The Statutory auditors are required to audit the
financial statements of an organization to express their opinion.
3. Financial Reports forms the backbone for financial planning, analysis,
benchmarking and decision making. These are used for above purposes by various
stakeholders.

4. Financial reporting helps organizations to raise capital both domestic as well as


overseas.

5. On the basis of financials, the public in large can analyze the performance of the
organization as well as of its management.

6. For the purpose of bidding, labor contract, government supplies etc.,


organizations are required to furnish their financial reports & statements.

Financial Disclosure and Reporting Requirements in Pakistan:


Financial reporting is one of the most important ways to make directors and executives
accountable towards shareholders. That’s why; corporate law and governance
mechanism put additional pressure on this aspect. According to Companies Act 2017,
every company shall prepare and keep complete books of account and prepare financial
statements for every financial year. Companies are also required to prepare financial
statements giving a true and fair view of the state of the affairs of the company.

Companies Act 2017 restricts the companies to maintain complete books of accounts
together with the vouchers relevant to any entry in such books of account shall be kept
in good order for a period of not less than ten financial years.

Corporate law imposes tough penalty, if a company fails to comply, every director,
including chief executive and chief financial officer, of the listed company who has by his
act or omission been the cause of such default shall be punishable with imprisonment
for a term which may extend to two year and with fine which shall not be less than five
hundred thousand rupees nor more than five million rupees, and with a further fine
which may extend to ten thousand rupees for every day after 46 the first during which
the default continues; and in respect of any other company, be punishable with
imprisonment for a term which may extend to one year and with fine which may extend
to one hundred thousand rupees.
It is the responsibility of board to present Financial Statements for the period in annual
general meeting. The financial statements must be presented within a period of one
hundred and twenty days following the close of financial year of a company. It is the
responsibility of every company to send audited financial statements together with the
auditor’s report, director’s report to every person who is entitled to receive notice of
general meeting.

Companies Act 2017 further directs corporations to prepare financial statements in


accordance with international financial reporting standards (IFRS) issued by IASB or such
other standards as may be notified by the Commission. However, this condition shall not
apply to insurance or banking company or to any other class of companies for which the
separate requirements of reporting have been provided in the companies Act 2017. To
ensure consistency and comparability, board of a holding company has been directed by
Act to ensure that its financial year and each of its subsidiaries should be same. If
financial year of holding and subsidiary company are not same then there must be some
recorded good reasons for it.

Every listed company has been asked to prepare the quarterly financial statements.
These statements will be presented on website of the company for information of its
members and also be transmitted electronically to the Commission, securities exchange
and with the registrar. These quarterly final statements must be prepared with in thirty
days of the close of first and third quarters of its year of accounts; and within sixty days
of the close of its second quarter. The financial statements for first and third quarters
will remain unaudited whereas the second quarter financial statements are subject to
limited audit review but not full-fledged audit.

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