The upcoming discussion will update you about the difference between financial reporting and financial statements.
1. Financial statements are a central feature of financial reporting. They are a principal means of communicating accounting information to those outside an enterprise.
Although financial statements may also contain information from sources other than accounting records, accounting systems are generally organised on the basis of elements of financial statements (assets, liabilities, revenues, expenses, etc.) and provide the bulk of the information for financial statements.
The financial statements now most frequently provided are:
(a) Balance sheet or statement of financial position,
(b) Income or earnings statement,
(c) Statement of retained earnings,
(d) Statement of other changes in owners’ or stockholders’ equity, and
(e) Statement of changes in financial position (statement of sources and applications of funds).
2. Financial reporting includes not only financial statements but also other means of communicating information that relates, directly or indirectly, to the information provided by the accounting system, that is, information about an enterprise’s resources, obligations, earnings, etc.
Management may communicate information to those outside an enterprise by means of financial reporting other than formal financial statements either because the information is required to be disclosed by authoritative pronouncement, regulatory rule, or custom, or because management considers it useful to those outside the enterprise and discloses it voluntarily.
Information communicated by means of financial reporting other than financial statements may take various forms and relate to various matters. News releases, management’s forecasts or other descriptions of its plans or expectations, and descriptions of an enterprise’s social or environmental impact are examples of reports giving financial information other than financial statements or giving only non-financial information.
3. Financial statements are often audited by independent accountants (auditors) for the purpose of enhancing confidence in their reliability. Some financial reporting by management outside the financial statements is audited, or is reviewed but not audited, by independent accountants or other experts, and some is provided by management without audit or review by persons outside the enterprise.