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Accounting and Financial Reporting2022-05-12T07:40:24+04:00

Accounting and Financial Reporting

Say the word “accounting” and a vision of tons of financial transactions springs to mind. Accounting & financial reporting is the lifeblood for any business. Why not, after all, they show you a glimpse of where your business stands financially and take the steam out of the stressful tax season.

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Accounting

The process of recording financial transactions relevant to a business is termed accounting. The task involves summarizing, analysing, and reporting these transactions to oversight agencies, regulators and tax collection entities. A business uses its accounting records to prepare financial reports called accounting reports that are equivalent to financial statements. The most common forms of accounting reports are – income statements, statements of cash flows, balance sheets and statements of equity change. Reports can be as brief or comprehensive as needed for bespoke reports prepared to deliver a particular purpose such as the profitability of a specific product line.

Whether manufacturing or service, no matter what industry your business belongs to, it has to set up various departments in order to function independently or interdependently towards accomplishing the short-term as well as long-term organisational goals. All these departments might be different from one another but at the end of the day, it’s the accounting & finance department that ties all of them together. The accounting & financial aspects of each and every department are recorded and are reported to various stakeholders – there are two different types of reporting – Management Accounting & Cost Accounting.

Financial Reporting

All the financial transactions performed over an accounting period are presented in the form of financial statements that further narrow down to a financial report showcasing the overall performance of the organisation. Typically viewed as companies issuing financial statements, financial reporting is the way of communicating the financial information or results of an organization to the concerned people, including stakeholders and creditors. Financial reports are generally used to compare companies that are similar in nature or belong to the same industry.

Overall, the basic purpose of accounting and financial reporting is to provide a summary of an organisation’s operations, financial position, and cash flows which is further used by the management to make big small corporate decisions. UAE follows International Financial Reporting Standards (IFRS) and the IFRS for SMEs Standard. The UAE Commercial Companies Law No 2 of 2015, which came into force on 1 July 2015, mandates all companies to apply international accounting standards and practices when preparing their accounts.

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Accounting & Financial Reporting: Significance

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Financial reporting is the all-inclusive account of all the business transactions, including expenses and income details. Generated either quarterly or annually, financial reports communicate the financial position of an organisation over a specific period. Prepared to study resource usage, cash flow, business performance and the financial health of the business, financial reports intend to track, analyse and report business income. Business owners and managers have to keep the historical data (presented in the form of financial statements) in front of them for future planning and budgeting. They also need to check the correlation between profitability and cash generated from operations. Not only that but, businesses also need to present the company’s financial status to its investors, creditors, clients, suppliers, and government agencies. In the light of these facts, it’s paramount that the accounting and financial reporting is accomplished by the experts in the field only who not only is capable of presenting the true and fair picture of the business’s financial standing but also of ensuring the financial statements comply with IFRS.

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Financial Reporting: Objectives

Keeping track of business is crucial for any firm to move ahead. Management has to understand its firm’s financial position after a certain period. Usually, after one year, a business stabilises and requires forecasting. And that’s where the financial reports come and assist the management in organisational planning and decision-making. It not only shows a clear picture of the financial position but also directs towards future decision-making. It shows the accounts of the last date is the financial year-end, and with the help of the balance sheet, it shows the balances for future business investments. Revealing information about a company’s revenue, expenses, profitability, and debt, financial statements are essential for an organisation. Let’s take a look at some of the objectives behind the preparation of financial reports below. Financial reports provide the required information:

  • On the credit and investment decisions made by the company.

  • For assessing the cash flow (securities, income earning, profit and loss decisions for lenders)

  • Regarding economic resources that include shareholder claims, claims made by creditors and offer clarity to other financial claims, etc.

  • About the financial results, profit & loss information or expenses made during certain periods

  • On the liquidity and solvency of the firm with details on how the firm gets the funds required for running the business and how it utilises the funds received. It also explains the lenders about the ways of investing money in the business.

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Financial Reporting: Objectives

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Aimed to help management in predicting future requirements, financial reports are equipped to provide companies with oversight of their financial dealing. Below-mentioned is the list of mainstays of financial reporting:

  • External financial statements (income statement, statement of comprehensive income, balance sheet, statement of cash flows and statement of stockholders’ equity)

  • Notes to the financial statements

  • Public documentation pertaining to quarterly earnings and related information

  • Quarterly and annual reports to stockholders

  • Financial information posted on a company’s website

  • Quarterly and annual financial reports to government agencies

Documentation regarding the distribution of common stock and other securities

Reporting Types

Knowing the financial condition of an organisation is important for both its owners as well as investors. Apart from stakeholders, other external entities such as customers, creditors, government authorities may also be interested in this report to analyse the current financial standing of the company so they can make further decisions with that organisation. It is the controller’s job to prepare this report. Keeping both internal use and external parties in view, a financial report is compiled in two forms:

Offering a snapshot of a corporation’s financial health at a particular point in time, providing insight into its performance, operations, cash flow, and overall conditions, this report type is generated for stakeholders who can make informed future business decisions (such as equity investments, especially when it comes time to vote on corporate matters) looking at the present financial standing of the company they invested in.

This type of report is created for internal purposes to help management run the organization, make business decisions, and monitor progress. Cash reports, variance analysis, status reports, forecast reports, financial reports, board reports & packages, budget books, LoB reports, variance reports, KPI reports, systems reports and internal audit reports are some of the examples of such reporting types.

Accounting and Financial Reporting Services in UAE

While financial accounting is a branch of accounting that keeps tabs on a company’s financial transactions, a financial report or financial statement is a management tool utilised to convey key financial information to both internal and external stakeholders by covering every aspect of financial affairs with the help of specific KPIs. Unlike bookkeeping that can be done by an accountant, financial reporting should be performed by expert finance professionals only. We won’t mince matters – your company might be in dire straits if your accounting & financial reporting isn’t done by due care.

Preparation of a financial report is certainly a daunting task for many businesses but not for us. We, at Adam Global (AG), have a specialised team that have a penchant for solving all your accounting and financial reporting problems. You may count on our accounts & finance specialists in UAE for your monthly, quarterly and annual financial statements. Not only that we can also assist you with financial performance review including ageing analysis of inventory, receivables, payables, and ratio analysis to gauge and evaluate business performance. Apart from financial accounting & financial reporting services, you may also make the most of our years of experience in bookkeeping, concurrent accounting and year-end accounting. Worth their salt, our experienced and qualified accountants in UAE are happy to assist you with:

  • Chart of accounts preparation
  • Ledger setting
  • Financial statements (monthly, quarterly, annually)
  • Budgeting & Variance Analysis
  • Cash Flow Management
  • Bespoke reports creation to address different issues
  • Financial Analysis
  • Financial statements generation for audit purpose
  • Auditors (coordination)

Contact us for free consultancy and to know how Adam Global can help you prepare various accounting and financial reports.

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FAQ

What are the common types of accounting that are relevant for businesses in the UAE?2022-01-05T12:49:29+04:00

Accounting is majorly divided into three types:

  1. Financial Accounting refers to the processes used to generate interim and annual financial statements.
  2. Management Accounting utilizes much of the same data as financial accounting, but it organizes and utilizes information in different ways to help businesses make decisions about management.
  3. Cost Accounting aids businesses make decisions about costing.
Is financial audit mandatory in UAE?2022-01-05T12:53:16+04:00

Businesses have to deal with tons of financial transactions on daily basis. The result of these transactions during an accounting period are outlined in various statements namely- balance sheet, income statement, and cash flow statement. An external CPA firm audits the financial statements of most companies every year. For some entities such as publicly-traded companies, an annual audit is a legal requirement. However, lenders also typically require the results of an external audit annually as part of their debt covenants. Therefore, most organisations will have annual audits for one reason or another.

Why do shareholders require financial statements?2022-01-05T12:54:44+04:00

A shareholder or a stockholder is an entity that owns at least one share of a company’s stock, known as equity. In return, they receive benefits in the form of dividends. In a way shareholders own the company hence they are interested in keeping abreast of the company’s overall financial position. And that’s where financial statements help by providing a snapshot of the company’s financial health at a particular point in time, giving insight into its performance, operations, cash flow, and overall conditions. Shareholders need these pieces of information to make informed decisions about their equity investments, particularly in the event of voting on corporate matters.

What are the benefits of financial reporting in UAE?2022-01-05T12:57:10+04:00

First off, as per the UAE commercial company law, maintaining the book of accounts is obligatory. Accounting & financial reporting periodically lets the investors assess the financial position of the company, analyse investment opportunities and minimise unnecessary expenses. Besides that, generating financial report helps organisations in:

  • Enhancing the debt management of a company.
  • Managing the liabilities through loan management and credit management.
  • Real-time tracking of the accounts, which facilitates liquidity management. If the businesses are in the know of the available funds, they can devise expansion plans.
  • Determining the trends of past and future which enables them in business forecasting by performing comparative study.
  • Business planning and making sound business decisions as it provides companies accurate information on the availability of capital.
  • Boosting quality of business decisions taken by public and internal management.
  • Maintaining transparency with customers.
  • Maintaining the share prices of the firm and treating all the investors equally.
  • Bringing down the employee iteration rate as it keeps the employees informed about company’s growth potential, thus increasing job security.
Who are the external users of financial statements?2022-01-05T12:57:48+04:00

Business owners and managers have to do a lot with financial statements but they are not the only users of them. There are external entities who are equally interested in knowing the financial position of the firm as they are some ways or the other connected but with the business with limited access to its financial information. Financial accounting provides financial information that is dependable, germane and useful to the below-mentioned external parties:

  • Shareholders/Investors
  • Lenders/Creditors
  • Potential Customers
  • Suppliers
  • Regulators/UAE Tax Authority

Financial accounting helps not only the internal users but also the external users in decision-making. So, it is highly recommended to all businesses in the UAE to have proper accounting and reporting not only to shield the company but also to satisfy the external parties to ensure continuous improvement and growth of the business.

What are the limitations of financial reporting?2022-01-05T12:58:19+04:00

Like any other thing in the world, financial reporting also has some limitations. Financial statements or reports:

  • Aren’t futuristic as the data they provide are from last year and the stakeholders and creditors are more interested in the future position of the firm.
  • Could be a good measuring tool but no solution to the negative results as despite showing profitability and financial strength of the company they do not advise anything on how a company can improve the numbers and develop the business.
  • Neglects the changes in the price level especially when the prices of commodities fluctuate oftentimes as the reports are created considering the current rates. Therefore, the results could be misleading.
  • Don’t consider the qualitative aspects in the accounting process such as inputs received from the human capital of the organisation like their efficiency, technical know-how and profitability.
  • Can give misleading results in the absence of trustworthy data. Hence, the reports are not completely dependable.
  • Don’t consider intangible assets and take into account only the expense made to avail the intangible assets like creating a brand image which results in an acute change in the actual reports as compared to the generated ones.