5 Reasons Financial Reporting Is Important

Financial analysis and reporting are one of the bedrocks of modern business. They provide various important financial information that helps investors, creditors and analysts evaluate a company’s financial performance, it is also important to note that financial reporting is important because it’s a legal requirement in most countries. Below are few reasons why financial reporting is important for every business.

• TAX PURPOSES
First and most important thing to know and understand is that you are required by the law to tender your financial report. The Internal Revenue Agency uses these reports to ensure you’re paying your share of taxes.
Accurate financial reporting helps reduce tax burden and helps ensure that all resources are not exhausted in a short amount of time.

• SHOWING FINANCIAL CONDITION
Financial statements provide detailed information about the company’s asset investments and outstanding debt and equity components.
Being able to provide a good financial statement helps with getting potential investors because they want to know how well the company is doing before they invest.

• EVALUATING OPERATIONS
The information on a balance sheet is a record of a company’s assets and liabilities at the end of a financial period. It helps to appraise a company’s past income performance and assesses future cash flow.

• DECISION-MAKING, PLANNING AND FORECASTING
Analyzing financial statements is crucial for making business decision. Managers can valuate companies’ asset to know if to purchase more or to sell off if its depreciating. Financial records help them make such decisions.

• ALLEVIATE ERRORS
Financial reporting help business’s catch expensive mistakes and internal errors early enough. Financial reporting helps to detect illegal financial activities and catch discrepancies in financial statements.