Financial reporting is the technical side of accounting and its key focus is producing reports for a company’s stakeholders. These “users” of financial of information can be shareholders, banks, other investors, the IRS, creditors, managers, employees – basically anybody with an interest in the company.
That makes the job a highly important one but what does it involve specifically, and besides technical ability, what else does it take to specialize in this area of accounting?
Have you ever flicked through a company’s glossy annual report? If you’re a listed company shareholder, you’ll get them in the mail in a big, thick envelope. That is, if your company hasn’t yet switched to dispatching them via the internet in the interests of environmental sustainability.
The annual report starts off innocently and interestingly enough. It usually contains some pictures of happy staff, charts on how the company is doing better or worse (surely not!?) than last year, and some inspirational words from the CEO, Chairman and occasionally the CFO on how much better it’s going to do next year.
And then, about half way in, you reach the Financial Report. And stop reading. Because apart from some familiar looking statements – that would be the balance sheet and profit and loss – the rest of the report is comprised of lots of words and numbers that no one could possibly be interested in.
Or Could they?
Welcome to the world of financial reporting.
Now this is going to sound obvious..but…an accountant specializing in financial reporting is responsible for preparing an organization’s financial statements.
Not only does this comprise the headline numbers contained on statements such as the balance sheet, profit and loss and cash flow, it also includes the notes to the financial statements.
These notes provide more detail on the numbers, plus disclose to readers of the statements the accounting policies that were used to recognize, measure and disclose the organization’s financial information.
These types of accountants work for a variety of organizations, because just about every one needs to produce a financial report in some format. Clearly, some will be more complex than others.
A financial report produced by a small not-for-profit organization will not be the 100 page tome that a stock exchange listed company puts out.
Here’s two key points to bear in mind when it comes to financial reporting:
Another way of saying this that the accounting needed for a mining company can differ substantially from a Bank. They will recognize their income, expenses, debtors and creditors in very different ways.
Accounting standards are the principles and rules that guide the preparation of financial reports. And it’s fair to say there are a lot of principles and rules.
Some of them can be quite straightforward, like whether something is an asset or liability. Actually, whether something is an asset or a liability is sometimes not so straightforward!
It’s for this reason that the field of financial reporting employs a lot of people to interpret the accounting standards (principles) and advise on how a particular situation or transaction should be treated.
People involved in financial reporting are the technical boffins of the accounting industry. They’d be the ones wearing white lab coats if wearing white lab coats was acceptable in the central business district of our cities.
To be successful in financial reporting you need to have the ability to:
All while explaining the position in the most understandable manner possible.
Sounds simple, doesn’t it?
Unfortunately, what tends to complicate matters is that accounting standards and interpretations seem to be forever changing! Some of this is due to economic and industry developments, and some is due to…well, sometimes it can be hard to tell exactly why the standard setting bodies keep changing the standards!
Whatever the reason, an important part of being a financial reporting professional is staying abreast of technical developments in the accounting industry.
Additionally, the fact that accounting standards are different across the world means that the skills of a financial reporting accountant are not always fully transferable. But don’t let that scare you as it’s becoming less of an issue.
Currently, the USA follows its own Generally Accepted Accounting Principles (aka GAAP) whereas the majority of other countries use International Financial Reporting Standards (aka IFRS).
There’s a ton of overlap but a lot of differences. There’s been much work done over the years to bring them into line but it’s not there yet.
Picture yourself in an office with eight volumes of accounting standards on the shelf behind you, your nose buried in another volume, while you compile a five page paper on which portion of a cash flow hedging instrument should be treated as comprehensive income (balance sheet reserves) and which part as profit (P&L).
Can you do it?
If so, the world of financial reporting could be for you. Because it’s definitely not for everyone. You really do need a technical brain, as well as an eye for detail. It can be a really specialized area, but one that should always be in demand due to the ever-changing requirements of standard-setting bodies.
One thing’s for sure though, as a financial reporting accountant, you’ll always understand the second half of an annual report.