Accounting & Finance

Understanding Financial Reporting: What is it and Why it Matters?

 Decoding the intricacies of the complex process. 

  • 4 min Read
  • January 19, 2024

Author

Escalon

Table of Contents

As an entrepreneur, you understand that your business is considered on a high growth trajectory only when measurable, comparable, and accurate figures indicate it. 

Financial reporting is one of the most crucial parts of this process. It helps manage the growth of your business, stay on track for your objectives and milestones, and make informed decisions.

This article discusses financial reporting and lists its components and the key benefits.

Schedule a call today

Financial reporting explained

 

What is financial reporting?

It is the accounting process for communicating financial information to internal and external stakeholders. 

Financial reporting is often achieved by the core financial statements: balance sheet, income statement, and cash flow statement. But it can also come in many other forms, depending on the reader’s information needs.

  • For internal stakeholders: The process can comprise any financial reports that senior management wishes to generate, such as sales reports, trends, and key performance indicators (KPIs).
  • For external stakeholders: Financial reporting usually comprises 10-Q and annual 10-K report filings to the Securities and Exchange Commission (SEC).

What is its purpose?

Financial reporting provides insight into a company’s financial position, cash flows, and operations. It equips external and internal stakeholders in the company with the correct information at the right time to make better-informed decisions. 

Talk to us about how Escalon’s essential business services can help your firm scale faster.

 

What does it include?

Financial reporting demands significant time and effort. Many reports and documents are to be derived from several different departments in a company, as illustrated below: 

Midsize firms: Controllers and accounting teams oversee the financial reporting process.

Public companies: CFO, CEO, and external auditors certify information. The investor relations department handles the distribution of information to the public. 

Small businesses: The lead accountant or business owner manages financial reporting, often with external accountant support.

Regardless of company size, financial reporting includes:

  • Financial statements
  • Notes to the financial statements
  • Quarterly and annual reports to stockholders
  • Statement of Shareholders’ equity
  • Management’s discussion and analysis(MD&A)
  • Communications regarding quarterly earnings and other related information
  • SEC filings, including the 10-K and 10-Q, or even the 8-K report (for unscheduled material events or corporate changes)

A critical aspect of financial reporting is timeliness, as even the most accurate report loses value if it is outdated.

Why is financial reporting critical?


Here are four reasons why financial reporting is vital to your business:

Compliance

Financial reporting is essential because it ensures compliance with applicable regulations and requirements. 

Securing capital

A company’s financial story is significant when raising capital through public markets, private investments, or bank loans. External parties and investors rely on financial reports to assess the company’s creditworthiness and operational robustness.

Financial planning and analysis

Financial reporting is indispensable to internal company management in planning and forecasting. It is a foundation for analyzing operations, computing cash flow efficiency, or measuring KPIs.

Reassurance

Investors, partners, customers, and suppliers often also use financial reports to form predictive opinions regarding the future performance and viability of the firm. 

The final word


Financial reporting can be complex, but it’s essential to running a successful business. Though every company has a slightly different system to meet its unique reporting requirements, there’s much in common from business to business.

Schedule a call today

Want to know more about finance and accounting? Since 2006, Escalon has helped thousands of startups get off the ground with our back-office solutions for accounting, bookkeeping, taxes, HR, payroll, insurance, and recruiting — and we can help yours, too. Talk to an expert today. 

This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal or accounting advice in this article. If you would like to engage with Escalon, please contact us here.

Talk to our team today to learn how Escalon can help take your company to the next level.

  • Expertise you can trust

    Our team is made up of seasoned professionals who bring years of industry experience to the table. You gain a trusted advisor who understands your business inside out.

  • Quality and consistency

    Say goodbye to the hassles of hiring, training and managing in-house finance teams. You will never have to worry about unexpected leave of absence or retraining new employees.

  • Scalability and Flexibility

    Whether you’re a small business or a global powerhouse, our solutions scale with your needs. We eliminate inefficiencies, reduce costs and help you focus on growing your business.

Contact Us Today!

Tap into the latest insights from experts in your industry

Accounting & Finance

M&A Readiness: How to Prepare Your Financials for a Successful Acquisition or Sale 

Mergers and acquisitions (M&A) can dramatically alter a company’s trajectory—unlocking new markets, technologies, or customer bases. Yet, many deals stumble...

Read More
Accounting & Finance

Optimizing Working Capital: Strategies to Maximize Liquidity Without Raising Funds 

Working capital: The difference between your current assets and your current liabilities. It’s a key barometer of financial health.  While...

Read More
Accounting & Finance

Outsourcing vs. In-House: A Strategic Guide for Growing Companies

Expanding your team and capabilities is critical to sustaining growth—but the question often arises: Should you build an in-house department...

Read More
Accounting & Finance

The CFO’s Role in Driving Operational Efficiency in a Mid-Sized Company 

A Chief Financial Officer (CFO) isn’t just a numbers person anymore. Modern CFOs play a pivotal role in shaping strategy,...

Read More
Technology & Security

What Every $10M+ Business Should Know About Data Privacy Laws 

Once your annual revenue surpasses $10 million, you attract more attention from regulators, partners, and customers, especially regarding data privacy....

Read More
People Management & HR

The Cost of a Bad Hire: How to Improve Your Recruiting Process

Hiring is one of the most pivotal processes in any organization, particularly for a medium-sized business looking to scale. Yet...

Read More
People Management & HR

Key Insights from the 2025 CBIZ Not-for-Profit Pulse Survey 

At Escalon, we are committed to keeping our clients informed about the latest trends, challenges, and opportunities across the industries...

Read More
People Management & HR

Scaling Culture: How to Keep Employees Engaged as Your Business Grows

Growth in headcount brings exciting opportunities for a business, but it also poses a key challenge: How do you maintain...

Read More
Accounting & Finance

Managing Multi-State Compliance as Your Workforce Becomes More Distributed

Rapid expansion and remote work trends have empowered medium-sized businesses to hire talent nationwide. Yet with multi-state operations come multi-layered...

Read More