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Why is Financial Reporting Important for Your Business?
Effective financial reporting is essential for Singaporean businesses, especially small and medium-sized organisations (SMEs). SMEs are the foundation of the marketplace, and understanding finances is vital for their success.
There is a growing regulatory focus on the financial services sector. Financial reporting metrics will be a major focus of new rules beyond 2024, improving compliance systems to ward off penalties.
Financial reporting is the preparation of the required statements: an income statement, cash flow statement, and balance sheet. These provide detailed insights into the financial condition of a business, and hence the stakeholders can make wise decisions.
Applying financial reporting and analysis principles brings about confidence and trust from the stakeholders in Singapore. This is because such rules provide openness, consistency, and reliability.
A reliable financial reporting system transforms your reporting skills in a fast-paced corporate setting. Businesses may make strategic decisions, manage development phases more efficiently, and achieve long-term success using innovative technologies and precise financial management.
The first step to attaining financial stability and success in today's cutthroat economy is realising the significance of financial reporting.
What is financial reporting?
One of the most important business procedures that finance and accounting officials in the company need to comprehend and value is financial reporting. Financial reporting involves conducting a thorough examination of quarterly, monthly, or annual financial data to improve business performance and outcomes.
To help detect present and future cash flow issues, financial reporting enables finance teams and the company to track and evaluate cash inflows and outflows. This guarantees enough cash flow to expand its operations and seize new possibilities.
Some key parts of financial reporting include a balance sheet, cash flow statement, income statement, and a statement of shift in equity. All these financial accounts provide monitoring information in terms of profitability, cash flow, liabilities, assets, and shareholder equity.
Decision-making requires accurate financial reporting and analysis because it provides accountability and openness. By proving their financial stability, it can help firms analyse performance, spot growth prospects, maintain compliance, and get finance.
What are the financial reporting standards in Singapore?
Under Singapore's financial reporting standards, financial statements must be reliable, transparent, and consistent.
The financial reporting standards, which are established by the Accounting Standards Council (ASC) and comply with the International Financial Reporting Standards (IFRS), comprise:
The Financial Reporting Standards of Singapore (SFRS): For worldwide uniformity and dependability, conform to the IFRS (International Financial Reporting Standards).
Small Entities' SFRS (SFRS for SE): Streamlined standards for SMEs to ease the burden of reporting.
SFRS for Nonprofit Organizations: Designed only to meet the specific needs of nonprofit organisations.
Note: Sustaining financing and donor confidence depends on accurate financial reporting. The State of the Nonprofit Sector Report for 2024 emphasises the significance of open and honest financial procedures for drawing in and keeping contributors as well as meeting grant criteria.
Fair presentation, accrual basis, going concern, comparability, prudence, completeness, consistency and understandability are some key principles. These criteria maintain Singapore's position as a major international financial centre while balancing regulatory needs and flexibility. Respecting these guidelines guarantees trustworthy, open financial reporting, and encourages investor confidence.
What is the significance of financial reporting?
For decision-making and strategic planning, the insights you get from evaluating and reporting the financial data are immediately useful. Moreover, such insights also produce long-term value by assisting you in improving your procedures, which will eventually increase speed, accuracy, and efficiency.
Below are the major advantages of financial reporting:
Informed decision-making
To make well-informed decisions, accurate financial reporting and analysis is necessary. Management uses these reports to plan expansion, assign resources, and assess performance. Creditors and investors evaluate feasibility and profitability to make solid information that supports sure choices.
For example, automated reconciliatory procedures help identify and fix errors in financial data, guaranteeing accurate and reliable results. This decrease in mistakes promotes improved decision-making and strengthens the reliability of financial information.
Transparency & trust
Proper disclosure is maintained through financial reporting, and it presents to the stakeholders a clear view of the financial health. Transparent communication is key in developing trust among the stakeholders—creditors, workers, customers, and investors—which forms the foundation for lifetime collaboration and success.
Detailed reports that include key financial metrics and visual aids such as charts and infographics improve comprehension and engagement among stakeholders, including investors, lenders, and regulators.
Performance evaluation & benchmarking
Financial reports make it possible to compare performance over time and with rivals in the sector. Benchmarking helps businesses adopt best practices, maintain competitiveness, set reasonable objectives, and monitor progress by highlighting strengths and shortcomings.
Robust financial reporting, for example, may highlight patterns and insights that support companies in implementing best practices and remaining competitive.
Boosting investor confidence
Accurate and timely financial reporting builds investor trust and confidence, drawing on new capital and keeping hold of current investors. This assurance supplies the funds for growth and innovation.
For example, the rise in SPACs going public has been a key driver of the sharp increase in recent public companies. More than twice as many IPOs were completed in the United States in 2021—1,035—compared with 2020, highlighting the importance of trustworthy financial reporting in attracting and retaining investors.
Corporate governance & ethical practices
Transparent and accountable financial reporting fosters ethical conduct and decision-making. This way, the organisation can ensure it acts in the best interests of all its stakeholders.
Creditworthiness & resource allocation
Creditors evaluate the financial reports for creditworthiness. Good financial reporting can bring about conducive lending terms and credit accessibility. It also fosters sustainable growth and stability. Comprehensive reports identify the strengths and weaknesses in finance to optimise the deployment of resources.
Compliance & accountability
Compliance with regulatory regulations and accounting standards through comprehensive financial reporting ensures legality and responsibilities. This not only avoids litigation but also ensures ethical behaviour and thus better credibility and character.
Legal & tax compliance
Accurate financial reporting satisfies statutory and taxation requirements, facilitates accurate tax determination and compliance, and minimises penalties and issues while achieving effective tax planning and compliance.
Systematic approach to the financial reporting process
Financial reporting is a structured process of communication about the performance of the business in financial terms to its stakeholders.
Here's a quick rundown of this organised process:
Record transactions: Record financial activities against their happening in a dual-entry bookkeeping system by making the relevant credits and debits to the general ledger.
Post data to related ledgers: Post entries in subsidiary ledgers to maintain full accountability, such as inventories, fixed assets, accounts payable, and accounts receivable.
Adjusting entries: In accrual accounting, adjust entries at the end of the accounting period to put on record revenues and expenses as incurred or earned.
Create Trial Balance: Put all the T-accounts together. Identify and correct any errors. To ensure that all debits and all credits are accurately matched prepare a trial balance.
Prepare financial statements: The balance sheet, statement of cash flows, income statement, and statement of equity adjustments will be prepared based on the adjusted trial balance to portray the correct state of the company.
Recording final entries: Record the final entries to reset accounts on the income statement—revenues and costs—to zero, for correct resetting of accounts for recording in the next period.
Preparing trial balance after closing: Prepare a post-close trial balance to ensure that the last transactions are properly recorded and prepared for the following period.
Financial Statement Analysis: Apply financial statement analysis, trend analysis, ratio analysis, and benchmarking to measure performance, position, and trends.
External Audit: An independent firm sees that accounts of listed public corporations assert accuracy and fairness, giving an overview of the accounting records.
Disclosure & Distribution: Accounts for accountability and transparency to stakeholders by disclosing financial statements and related information through reports, news releases, and regulatory filings.
How do you improve financial reporting systems?
Investment in financial reporting software is an integral part of finance management in any firm.
Accounting software reduces manual work, reducing the possibility of human error and enhancing the accuracy of financial information. For example, the finance staff may focus their efforts on finding cost-saving measures or investigating new income streams rather than investing hours on the compilation of monthly financial statements. Better overall productivity and cost savings result from this greater efficiency.
Financial reporting services offer real-time financial information for strategic decisions and free up the finance staff to do other key tasks. For instance, a sharp decline in sales may be promptly detected and rectified by focused advertising campaigns or modifications to pricing tactics. Acting on current knowledge enables organizations to take advantage of market developments and maintain an advantage over competitors.
Accounting software enhances stakeholder trust with reliable and accurate financial data. For example, precise cash flow forecasts may assist a business in efficiently managing its liquidity, preventing future cash shortages, and making the most out of investment possibilities.
Financial Reporting Examples:
Some financial reporting examples of tools to make things accurate and reporting easier include Workiva, FreshBooks, Oracle NetSuite, and more.
Workiva supports interactive reporting and adherence to large corporations. FreshBooks can help with easy invoicing and expense management for small businesses. Oracle NetSuite provides configurable reports and real-time analytics.
Internal Controls— Key to Good Financial Reporting
The internal control over financial reporting is quite tight because it prevents errors fraud, and misleading statements. These financial reporting systems ensure compliance and ensure accurate financial reporting.
The important elements include:
Risk assessment: Helps identify and mitigate risks with a clear overview of asset values and financial obligations
Control environment: Develop an environment that supports ethics and honesty.
Information & communication: There should be proper internal communication.
Monitoring activities: Implement policies and procedures, including segregation of duties.
Audits: Carry out periodic GST audits and correct the shortcomings.
Morrison Consultants designs proper internal controls to help ensure the integrity of finance and compliance, in addition to using innovative tools. It also enhances the efficiency and accuracy of the financial reporting.
Management vs financial reporting: Are they different?
Management reporting is used internally by executives and managers, focusing on operational data like revenues, inventories, and departmental performance. It will be helpful in strategic planning with the practical insights it provides and flexibility in recognising strengths and weaknesses, enhancing decision-making.
It contains structured records of the balance sheet, the profit-and-loss statement, and the statement of cash flows. It also aids in discharging legal obligations towards external stakeholders. While it lacks operational information and poor forecasting power, it provides a historical view of financial health.
Why outsource financial reporting?
You can slash costs in general and, at the same time, receive high-quality accounting and financial reporting services by outsourcing the management of your financial requirements. You can reduce the pain of managing large teams and staff when you have fewer employees to monitor.
Some of the significant advantages of outsourcing financial reporting and analysis are:
Focused Expertise: Access to experts ensures accurate and speedy reporting.
Automation & Technology: financial reporting services use relevant tools like Workiva to enhance compliance and reduce errors.
Turnover Mitigation: Reduces recruitment challenges, enabling you to focus on other core activities.
With multiple financial reporting certifications, Morrison Consultants specialises in this area. We provide accurate, timely, and compliant reports that aid clients in navigating tough financial situations.
Wrap Up
For transparency, increased investor confidence, and decision-making based on accurate information, proper financial reporting is necessary for all businesses to reap gains.
Specialised financial reporting software guarantees compliance, accuracy, and strategic insight. On the other hand, a proactive strategy will consider the new trends that are arising and make use of innovative technologies to safeguard financial integrity and speed up procedures.
Contact Morrison Consultants now for individualised consultation and broad financial reporting services for your business. With professional advice and modern tools in financial reporting, you can revolutionise financial reporting and support long-term success.