Reporting may mean to provide the information to the stakeholders as per the requirement of the law.

Reporting is
not the new concept. The companies are reporting through their annual report which is a comprehensive
report on
a company’s activities throughout the preceding year. Annual reports are intended to give shareholders and
other
interested people information about the company’s activities and financial performance. The annual report
contains
the financial reporting as well as non-financial reporting.
FINANCIAL REPORTING
Financial reporting is the process of producing statements that disclose an organisation’s financial status to
management, investors and the government.
Financial reporting serves two primary purposes. First, it helps management to engage in effective decision-
making
concerning the company’s objectives and overall strategies. The data disclosed in the reports can help
management
discern the strengths and weaknesses of the company, as well as its overall financial health. Second, financial
reporting provides vital information about the financial health and activities of the company to its
stakeholders
including its shareholders, potential investors, consumers, and government regulators. It’s a means of
ensuring that
the company is being run appropriately.
Financial Reporting involves the disclosure of financial information to the various stakeholders about the
financial
performance and financial position of the organisation 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.
The main components of financial reporting are:

The financial statements – Balance Sheet, Statement of Profit & Loss, Cash flow
statement & Statement of changes in stock holder’s equity
The notes to financial statements
Quarterly & Annual reports (in case of listed companies)
Prospectus (In case of companies going for IPOs)
Management Discussion & Analysis (In case of public companies)

The Institute of Chartered Accounts of India (ICAI) has issued various accounting standards and guidance
notes
which are applied for the purpose of financial reporting. This ensures uniformity across various diversified
industries
when they prepare and present their financial statements.
Objectives of Financial Reporting

The following points may be summed up as the objectives and purposes of financial reporting –
1. Providing information to management of an organisation which is used for the purpose of planning,
analysis,
benchmarking and decision making.
The financial statements – Balance Sheet, Statement of Profit & Loss, Cash flow
statement & Statement of changes in stock holder’s equity
The notes to financial statements
Quarterly & Annual reports (in case of listed companies)
Prospectus (In case of companies going for IPOs)
Management Discussion & Analysis (In case of public companies)
Lesson 14 • Reporting 389
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 organisation.
4. Providing information about the economic resources of an organisation, 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 organisation is procuring & using various resources.
6. Providing information to various stakeholders regarding performance management of an organisation 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.
Importance of Financial Reporting
The importance of financial reporting cannot be over emphasized. It is required by each and every
stakeholder for
multiple reasons and purposes. The following points highlight the importance of financial reporting –
1. In helps and organisation to comply with various statues and regulatory requirements. The organisations
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
organisation to express their opinion.
3. Financial Reports forms backbone for financial planning, analysis, bench marking and decision making.
These
are used for above purposes by various stakeholders.
4. Financial reporting helps organisations 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 organisation as well as of
its
management.
6. For the purpose of bidding, labour contract, government supplies etc., organisations are required to furnish
their financial reports & statements.
7. Financial reporting also facilitates an introspection of the organization. It takes stock of various affairs
which
would have been missed in absence of any financial system.
Limitations of Financial Reporting
Corporate reporting is an essential means by which companies communicate with investors as part of their
accountability and stewardship obligations. The current financial reporting model was developed in the
1930’s
for an industrial world. In general, the model provides a backwards-looking review of performance and does
not
provide enough relevant information for decision- making today.
The financial reporting model is like “looking in the rear-view mirror,” when in fact the road ahead is very
turbulent
and there are huge impacts on the company, both societal and environmental.
It is not necessarily the volume of information, but the lack of a comprehensive story, which is where
improvements
in corporate reporting are needed. Investors expect information about:
• Business model and strategy,
• Intangible factors and sustainability (i.e. economic, environmental, social) commitments,
• Impacts and performance that affect a company’s value today and its ability to create value in the future,
• Key aspects of corporate governance,
• Internal controls,
• Human rights / diversity practices and policies,
• Key financial ratios.
390 Lesson 14 • PP-GRMCE
NON-FINANCIAL REPORTING
Apart from financial reporting, the non-financial reporting under the annual reports is also being made by the
companies. It contains the information relating to the company’s performance during the previous year,
future
projections, award achievements and penalty imposed, if any by any regulators, are apprised to the Stake
holders by
way of reporting in the annual report.
It is a structured way of presenting information about ones performance. Non-financial reporting is the
practice of
measuring, disclosing and being accountable to internal and external stakeholders for organisational
performance
towards the goal of sustainable and inclusive development.
There has been a general perception that right from the time of Industrial Revolution, economic development
has come
at the cost of environment and has brought about large scale destruction of nature and growth process has
not been
inclusive. Due to the negative externalities of economic development, the practice of non-financial reporting
started
largely in response to pressure from non-governmental organisations (NGOs) and civic society, which
claimed that
many firms lacked social and environmental responsibility. It epitomises that a company’s financial health is
dependent
on much more than the assets on its balance sheet and the movements on its profit and loss account.
Non-financial reporting is an opportunity to communicate in an open and transparent way with stakeholders.
In their non-financial reports, firms volunteer an overview of their environmental and social impact during
the
previous year. The information in nonfinancial reports contributes to building up a company’s risk-return
profile.
Non-financial reporting includes-
• Board’s Report,
• Corporate Social Responsibility Report
• Corporate Sustainability Reporting