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Does it feel like someone has just thrown you a lengthy job title? While this may appear as very complex or niche to some, it actually stands for an integral part of the accounting and reporting system of an organisation, and exactly what a modern, professional accountant has to do in the day-to-day functions of his/ her job. A professional accountant would be ACCA qualified.
The reason the job title sounds rather unfamiliar is because of the word “reporting”. Reporting specialist? Or a specialist who reports? We know it sounds hard to decipher, but at the end of the day, this is linked back to one common thread – Accounting and Finance department. So, what exactly is financial reporting and how does it differ from financial accounting in ACCA standards?
Here, we explore the two concepts that will give you a better understanding of the entire picture as covered in ACCA.
While they are essentially part of the same accounting and finance function and subject to the same accounting frameworks such as IFRS/US GAAP, there are subtle distinctions between financial reporting and financial accounting.
The primary focus of ACCA financial reporting is gathering and submitting information and valuable insights into the company performance needed by those who make financial decisions about the company while financial accounting involves a process of recording, summarising, and reporting the myriad of transactions resulting in the preparation of financial statements.
Financial Reporting aims to ensure compliance with regulatory requirements, and helps key decision makers assess company performance internally to plan and adjust the forecast whereas financial accounting is derived from five distinct areas of the financial statements: revenues, expenses, assets, liabilities and equity.
Financial information can be easily obtained if books are maintained on an accrual accounting basis. This is because accrual accounting usually provides a better indication of a company’s present and continuing ability to generate positive cash flows than that provided by cash receipts and payments.
Once the necessary data is gathered, the task is to compile all the information in an easy and understandable format for distribution to stakeholders, investors, creditors, the public, government and/ or government agencies and any other user. This is how ACCA trains all professional accountants.
– Parenthetical disclosures
– Quarterly & Annual reports (in case of listed companies)
– Notes to financial statements
– Prospectus (in case of companies going for IPOs)
– Management Discussion & Analysis (in case of public companies)
– Supplementary information (in case of changing prices)
– Letters to stockholders (in case of public companies)
– Any other financial information
The purpose of financial reporting is not to just report the transactions and value of a company; rather, its purpose is to provide enough information for key decision makers to assess the value of a company for themselves.
And since its broad components may include a rather expansive framework e.g. notes to financial statements and parenthetical disclosures (information clarifying that item on financial statements), supplementary information (such as changing prices), and other means of financial reporting (management discussions and analysis, and letters to stockholders), it is better to take specific courses such as ACCA’s Financial Reporting that trains you in International Financial Reporting.
In summary, financial reporting and financial accounting are related but separate concepts under the Accounting and Finance Department. Through cultivating the ability to differentiate or enrolling in specific courses, accountants will be able to improve each concept and understand their objectives and purposes better.