Financial reports are essential to every business because it helps you track and review the amount of money that your business spends and makes. It is also used to provide information to the shareowners and lenders of your business. Investors and lenders have the right to obtain information if their money is returning a profit or spent wisely.
A business owner must also take note of the elements that need to be present in a financial report. The report shows the profit and loss, but it should also indicate the profit your business is making and the loss it is suffering from. The assets must also be shown on the report so you will determine how your business is doing. Financial reports are not easy to interpret but there are businesses that may assume that the readers are knowledgeable about business and finance.
Although it is required for business owners to understand basic measurement methods and accounting terminology, it is important for readers to fairly interpret the reports to find out about the company’s financial standing. The financial report must also be kept legal by ensuring that it is governed by common and statutory law. The reports should be done based on ethical standards.
What companies should lodge financial reports?
• the company with great sums of money involved;
• the company that exists for charitable purposes and not for making a profit;
• the general public that has invested funds with the company.
The following entities are also required to prepare financial reports according to Section 292 of Corporations Act 2001:
• public companies
• all disclosing entities
• all registered schemes
• all large proprietary companies
• small proprietary companies that are foreign-controlled
• small proprietary companies or small companies limited by guarantee
• small companies limited by guarantee subject to a shareholder direction under s294a of the Corporations Act
• small proprietary companies subject to a shareholder direction under s293 of the Corporations Act
How to lodge a financial report?
A copy of Form 388 of financial statements and reports must be secured, completed and lodged with the required documents. If a company holds an Australian Financial Service Licence, a business owner must also lodge a profit and loss statement, balance sheet and auditor’s report using a Form FS70.
The financial report must be lodged in accordance to Corporations Act. All other companies must see to it that the financial reports are lodged within four months after the end of the financial year. The company that has not made a profit or traded during the financial year will still be required to lodge their financial reports.