According to the annual review of the Financial Reporting Council (FRC), 37% of companies primarily composed of small-listed and AIM quoted companies are submitting poor quality reports. They reviewed 271 sets of reports and accounts from 2013 to March 31, 2014 and out of these reports, they needed to call the attention of 100 companies (the 37%) for further clarification. Those
that fall under the FTSE 100 and FTSE 250 indexes submitted financial reports that needed clarifications or failed to meet the FRC standards for clear reporting. However, the FRC noted that those submitted by large public companies – particularly those in the FTSE 350 – is generally of a high standard.
The challenge for the FRC is to ensure the smaller companies follow suit and improve the quality of their financial reports within three years.
Financial Reports Reveal Health Status of Companies
Financial reports are crucial to a company’s growth. They provide insights to the current financial status or overall health of the company – whether they are making profits or experiencing losses. These reports reveal data important for company owners to decide on the strategies they need to make more revenue and allow investors to decide where to invest their money.This is why International Accounting Standards Board has created the International Financial Reporting Standards (IFRS) to ensure uniformity and develop consistency in the standards of financial reporting. The IFRS has set guidelines and a set format on how to state financial transactions within a report. The guidelines established by the IFRS make it easier for financial reports to be studied globally, without creating confusion due to different rules in different countries.
Four Costly Financial Reporting Mistakes to Avoid
Despite these standards, mistakes still happen. While there are errors that can be easily rectified without doing much damage, there are errors that can compromise not only a financial report’s quality but also cost losses for the business. Remember, business owners and investors base their company’s decisions on these financial reports. It is important that these are generated with care and up to par with standards set globally by the IASB.Here are four financial reporting mistakes that can be costly:
1. Not including references in the report
Every financial report should have accompanying financial documents – for audit and verification. They must be cross-referenced, especially those dealing with figures. An example is an expenses report. Each expense should accompany with it an invoice, OR receipt or another report detailing the expense.2. Insufficient disclosure of long-term debt
This is a common error in corporations. Debt details, especially those carried and paid out for in long-term should have complete information. Common errors are made in calculations of interest rates and projected payments. This can affect the company’s liquidity.3. Full disclosure between parties
In any transaction with parties or other companies where money is involved, a full disclosure is required. Reports should be done accurately and acknowledged to be true by BOTH parties. This is where discrepancies and errors or omission usually happen. There should be another accountant checking the work of the accountant who made the report, for check and balance.4. Most common financial reporting mistake: Omission
The FRC notes that most the financial reports done by companies they called the attention to were primarily incomplete. In finance, everything should be accounted for, from expenses, revenues, overhead costs, and workforce timesheets. What is being spent and earned should be accurately represented in reports. Reports of costs are usually the ones not completely accounted for.The advantage of financial reporting is that it deals with an accurate science. Errors can easily be traced and corrected. Errors of omission can be made right with education, training and care on the part of the accountant.
Financial reports reveal the current bloodline of the company – its money, its revenue and its losses. Extreme care should be taken so that these reports reflect an accurate state of finances.
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