Financial reporting and analysis play a critical role in ensuring the success of your business and its executive team and helping to ensure regulatory compliance. This makes it an essential function in every organization, whether big or small. But when you’re faced with so many different regulations and methods of financial reporting, how do you know which method to use? The answer lies in understanding the difference between GAAP, IFRS, and GDPR (newly released) methodologies used in financial reporting.
What is Financial Reporting and Analysis?
Financial reporting is a business process that involves taking financial data and communicating it to shareholders, stakeholders, and other interested parties. Financial statements contain specific information about a company’s financial situation over a period of time.
Benefits of Financial Reporting and Analysis
Before we understand how companies use financial reporting, it’s important to understand why they do so. At its core, business is really about trust. If you are thinking about working with a new company or investing in one (and who isn’t?), you have to be sure that it is solid and sustainable. You want to know that if your needs change or their products stop selling well, they will be able to adapt and keep offering great value. They have to be able to show investors and other stakeholders (like employees) that they will always be around; a great way for them to prove their stability is through audited financial statements.
Different Ways of Financial Reporting And Analysis
GAAP, IFRS, GDPR: Financial reporting and analysis can seem like a complex maze to those who are unfamiliar with it. But with so much information at hand, companies must always stay on top of financial results, especially in today’s business world.
GAAP (Generally Accepted Accounting Principles)
GAAP is a set of accounting principles, standards, and procedures mandated by law to provide transparency to investors. GAAP is used for public companies or firms whose securities are traded on an exchange.
IFRS (International Financial Reporting Standards)
IFRS is a set of standards that guide all financial reporting by public companies, private companies for use in fundraising, certain not-for-profit organizations, and other entities that file financial statements with a government body. IFRS standards are issued by The International Accounting Standards Board (IASB). As an international standard, it is used to improve comparability between financial reports issued in different countries.
GDPR: (The General Data Protection Regulation)
The General Data Protection Regulation (GDPR) is a European Union regulation that replaces the Data Protection Directive 95/46/EC. It was designed to harmonize data privacy laws across Europe, protect and empower all EU citizens data privacy, and reshape how organizations across the region approach data privacy. It will also affect all those outside of Europe that personal process information from within Europe.
Before writing a business plan, you should first create a financial forecast. These will show your customers how much they can earn with your product or service. Every business person should know how to correctly write out financials so that their report shows either GAAP (Generally Accepted Accounting Principles), IFRS (International Financial Reporting Standards), or GDPR (General Data Protection Regulation). If you are curious about learning more, you can enrol yourself for an IFRS course with LBTC.