Editing Financial statement

{{Short description|Formal record of the financial activities and position of a business, person, or other entity}}
{{Accounting|expanded=Statements}}
[[File:Wachovia National Bank 1906 statement.jpg|right|thumb|250px|Historical financial statements]]

'''Financial statements''' (or '''financial reports''') are formal records of the financial activities and position of a business, person, or other entity.

Relevant financial information is presented in a structured manner and in a form which is easy to understand. They typically include four basic financial statements<ref>{{cite web |url=https://www.sec.gov/about/reports-publications/investorpubsbegfinstmtguide |title=
Beginners' Guide to Financial Statement |date=4 February 2007 |publisher=[[Securities and Exchange Commission]]}}</ref><ref>{{cite book |title=Intermediate Accounting |edition=18 |year=2022 |author1=Donald Kieso |author2=Jerry Weygandt |author3=Terry Warfield |isbn=978-1-119-79097-6 |p=1-3 |chapter=1.1 - Financial Reporting Environment |quote=financial statements (income statement, statement of owners’ (stockholders’) equity, balance sheet, and statement of cash flows) are the principal means that a company uses to assess its financial performance.}}</ref> accompanied by a management discussion and analysis:<ref>[http://www.iasplus.com/standard/ias01.htm "Presentation of Financial Statements"] Standard IAS 1, International Accounting Standards Board. Accessed 24 June 2007.</ref>

# A [[balance sheet]] reports on a company's [[asset]]s, [[Liability (financial accounting)|liabilities]], and [[Equity (finance)|owners equity]] at a given point in time.
# An [[income statement]] reports on a company's [[income]], [[expense]]s, and [[profit (accounting)|profits]] over a stated period. A profit and loss statement provides information on the operation of the enterprise. These include sales and the various expenses incurred during the stated period. 
# A [[statement of changes in equity]] reports on the changes in [[Equity (finance)|equity]] of the company over a stated period.
# A [[cash flow statement]] reports on a company's [[cash flow]] activities, particularly its operating, [[investing]] and [[financing]] activities over a stated period.
	
Notably, a balance sheet represents a snapshot in time, whereas the income statement, the statement of changes in equity, and the cash flow statement each represent activities over an [[accounting period]]. By understanding the key functional statements within the balance sheet, business owners and [[financial]] professionals can make informed decisions that drive growth and stability.
	
==Purpose of financial statements==
"The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions." 
Financial statements should be understandable, relevant, reliable and comparable. Reported assets, liabilities, equity, income and expenses are directly related to an organization's financial position. 

Financial statements are intended to be understandable by readers who have "a reasonable knowledge of business and economic activities and accounting and who are willing to study the information diligently."<ref name="iasplus.com">[http://www.iasplus.com/standard/framewk.htm "The Framework for the Preparation and Presentation of Financial Statements"] International Accounting Standards Board. Accessed 24 June 2007.</ref>  Financial statements may be used by users for different purposes:

*Owners and managers require financial statements to make important business decisions that affect its continued operations. [[Financial analysis]] is then performed on these statements to provide management with a more detailed understanding of the figures. These statements are also used as part of management's annual report to the [[shareholder|stockholders]].
*Employees also need these reports in making [[collective bargaining]] agreements (CBA) with the management, in the case of [[labor unions]] or for individuals in discussing their compensation, promotion and rankings.
*Prospective [[investor]]s make use of financial statements to assess the viability of investing in a business. Financial analyses are often used by investors and are prepared by professionals (financial analysts), thus providing them with the basis for making investment decisions.
*Financial institutions (banks and other lending companies) use them to decide whether to grant a company with fresh [[working capital]] or extend debt [[Security (finance)|securities]] (such as a long-term [[bank loan]] or [[debenture]]s) to finance expansion and other significant expenditures.
*Stockholders may from time to time request [[corporate transparency|insight]] into how [[share capital]] is managed, which may be made available via financial statements (or [[stock statement]]s), as it lies in the financial interest of shareowners in affirming that capital stock is handled viably and mindfully with duly care.<ref>{{cite web |title=Accounting standards and value relevance of financial statements: An international analysis |url=https://www.sciencedirect.com/science/article/abs/pii/S0165410101000118 |publisher=Science Direct |access-date=1 April 2023}}</ref>

==Consolidated==
{{main|Consolidated financial statement}}

Consolidated financial statements are defined as "Financial statements  of a group in which the [[asset]]s, [[liability (financial accounting)|liabilities]], [[equity (finance)|equity]], [[income]], [[expense]]s and [[cash flow]]s of the parent (company) and its [[subsidiaries]] are presented as those of a single [[economic entity]]", according to [[International Accounting Standard]] 27 "Consolidated and separate [[financial]] statements", and [[International Financial Reporting Standard]] 10 "Consolidated financial statements".<ref>{{cite web |url=http://www.iasplus.com/en/standards/ias/ias27-2011 |title=IAS 27 — Separate Financial Statements (2011) |publisher=IAS Plus (This material is provided by Deloitte Touche Tohmatsu Limited (“DTTL”), or a member firm of DTTL, or one of their related entities. This material is provided “AS IS” and without warranty of any kind, express or implied. Without limiting the foregoing, neither Deloitte Touche Tohmatsu Limited (“DTTL”), nor any member firm of DTTL (a “DTTL Member Firm”), nor any of their related entities (collectively, the “Deloitte Network”) warrants that this material will be error-free or will meet any particular criteria of performance or quality, and each entity of the Deloitte Network expressly disclaims all implied warranties, including without limitation warranties of merchantability, title, fitness for a particular purpose, non-infringement, compatibility, and accuracy.) |website= www.iasplus.com |access-date=2013-11-29}}</ref><ref>{{cite web |url=http://www.iasplus.com/en/standards/ifrs/ifrs10 |title=IFRS 10 — Consolidated Financial Statements |publisher=IAS Plus (This material is provided by Deloitte Touche Tohmatsu Limited (“DTTL”), or a member firm of DTTL, or one of their related entities. This material is provided “AS IS” and without warranty of any kind, express or implied. Without limiting the foregoing, neither Deloitte Touche Tohmatsu Limited (“DTTL”), nor any member firm of DTTL (a “DTTL Member Firm”), nor any of their related entities (collectively, the “Deloitte Network”) warrants that this material will be error-free or will meet any particular criteria of performance or quality, and each entity of the Deloitte Network expressly disclaims all implied warranties, including without limitation warranties of merchantability, title, fitness for a particular purpose, non-infringement, compatibility, and accuracy.) |website= www.iasplus.com |access-date=2013-11-29}}</ref>

==Standards and regulations==
Different countries have developed their own accounting principles over time, making international comparisons of companies difficult. To ensure uniformity and comparability between financial statements prepared by different companies, a set of guidelines and rules are used. Commonly referred to as [[Generally Accepted Accounting Principles]] (GAAP), these set of guidelines provide the basis in the preparation of financial statements, although many companies [[voluntary disclosure|voluntarily disclose]] information beyond the scope of such requirements.<ref name=FASB2001>FASB, 2001. [http://www.fasb.org/brrp/brrp2.shtml Improving Business Reporting: Insights into Enhancing Voluntary Disclosures]. Retrieved on April 20, 2012.</ref>

Recently there has been a push towards standardizing accounting rules made by the [[International Accounting Standards Board]] (IASB). IASB develops [[International Financial Reporting Standards]] that have been adopted by [[Australia]], Canada and the [[European Union]] (for publicly quoted companies only), are under consideration in [[South Africa]] and [[International Financial Reporting Standards#Adaptation and convergence|other countries]]. The [[United States]] [[Financial Accounting Standards Board]] has made a commitment to converge the U.S. GAAP and IFRS over time.

==Management discussion and analysis==
Management discussion and analysis or MD&A is an integrated part of a company's annual financial statements. The purpose of the MD&A is to provide a narrative explanation, through the eyes of management, of how an entity has performed in the past, its financial condition, and its future prospects. In so doing, the MD&A attempt to provide investors with complete, fair, and balanced information to help them decide whether to invest or continue to invest in an entity.<ref>[http://www.cica.ca/research-and-guidance/mda-and-business-reporting/index.aspx MD&A & Other Performance Reporting]</ref>

The section contains a description of the year gone by and some of the key factors that influenced the business of the company in that year, as well as a fair and unbiased overview of the company's past, present, and future.

MD&A typically describes the corporation's [[Accounting liquidity|liquidity position]], capital resources,<ref>{{Cite web |url=http://www.nikoresources.com/2002manage.html |title=Nico Resources Management's Discussion and Analysis |access-date=2014-02-19 |archive-url=https://web.archive.org/web/20061115081547/http://www.nikoresources.com/2002manage.html |archive-date=2006-11-15 |url-status=dead }}</ref> results of its operations, underlying causes of material changes in financial statement items (such as asset impairment and restructuring charges), events of unusual or infrequent nature (such as [[mergers and acquisitions]] or [[share buyback]]s), positive and negative trends, effects of [[inflation]], domestic and international market risks,<ref>{{Cite web |url=http://www.pepsico.com/Annual-Reports/1998/financial/analysis.html |title=PepsiCo Management's Discussion and Analysis |access-date=2014-02-19 |archive-url=https://web.archive.org/web/20120319194828/http://www.pepsico.com/Annual-Reports/1998/financial/analysis.html |archive-date=2012-03-19 |url-status=dead }}</ref> and significant uncertainties.

==See also==
*[[Accountable Fundraising]]
*[[Financial accounting|Corporate financial accounting]]
*[[Financial statement analysis]]
*[[Comprehensive annual financial report]]
*[[Model audit]]
*[[Earnings report]]

==References==
{{Reflist}}

==Further reading==
* Alexander, D., Britton, A., Jorissen, A., "International Financial Reporting and Analysis", Second Edition, 2005, {{ISBN|978-1-84480-201-2}}

==External links==
{{Library resources box 
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*[http://www.ifrs.org IFRS Foundation & International Accounting Standards Board]
*[http://www.fasb.org Financial Accounting Standards Board] (U.S.)
*[http://www.unece.org/trade/untdid/welcome.htm UN/CEFACT]
*{{cite web|last=Mańko|first=Rafał|title=New legal framework for financial statements|url=http://www.europarl.europa.eu/RegData/bibliotheque/briefing/2013/130552/LDM_BRI(2013)130552_REV1_EN.pdf|work=Library Briefing|publisher=Library of the European Parliament|access-date=6 June 2013}}
* [https://web.archive.org/web/20080523144037/http://www.investopedia.com/university/fundamentalanalysis/notes.asp Fundamental Analysis: Notes To The Financial Statements] by [[Investopedia.com]]

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[[Category:Financial statements]]