As a business owner, you undoubtedly have a lot on your plate. From big-picture visioning to the details of the day-to-day, there’s never enough time in the week. For many business owners, the ins and outs of financial statements and reporting can be a major learning curve. But they’re the backbone of business growth and development and cannot be ignored or put on the back burner for long. In addition, financial reporting is a legal obligation for all Canadian businesses, including businesses based in Manitoba.
At Compass Accounting, we often meet with corporate clients and small business owners looking to sharpen their understanding of financial statements and the financial reporting process. Below, we’ll go back to basics and provide some straightforward answers as we explore the importance of financial statements for Winnipeg businesses:
What Are Financial Statements?
Simply put, financial statements are records of all business transactions and financial activities. They are a gauge of your company’s success and accurately represent its finances in a transparent, standardized format, helping it to maintain accountability within its market industry.
Financial statements can include the following data (not an exhaustive list):
- Income statements
- Balance sheets
- Cash flow statements
- Capital expenditures
- Statements of changes in shareholder equity
- Statements of retained earnings
- Records of assets, liabilities, and equities
What Is Financial Reporting?
Financial reporting is the process of compiling and organizing financial statements to be published for private and/or public consumption. It provides a financial snapshot of your business, helping stakeholders gain an accurate understanding of exactly how well it’s doing.
Internal and external stakeholders that may take an interest in your business’s financial reports include the Canada Revenue Agency (CRA), government bodies, potential investors, creditors, clients, industry-specific organizations, partners in ownership, internal management, and more.
Major Uses of Financial Reporting
Financial reporting is a legal obligation and can also serve many different functions. Among them are:
- Helping businesses identify their successes, opportunities, and areas for growth and development
- Building trust and accountability by demonstrating that all laws, regulations, and ethical standards are being met
- Providing public knowledge for potential investors, clients, and other stakeholders
- Helping businesses secure loans and lines of credit (debt management)
- Reducing financial errors
- Helping businesses at tax time
- Demonstrating that a business is operating successfully
What Information Is Included in a Financial Report?
Financial reports are designed to provide a clear overview of business operations at a given moment in time. By looking at a financial report, a stakeholder should be able to determine the answers to the following questions:
- Is the business profitable?
- What are its assets vs. liabilities?
- Based on finances alone, is there potential for growth and expansion?
For more specifics about what should be included in your business’s financial report in compliance with International Financial Reporting Standards (IFRS), speak directly with a Compass Accounting representative.
Why Are Financial Statements Important?
Financial statements are important because they provide the data necessary for you to run your business efficiently and effectively. In addition, they provide a transparent overview of your finances and build trust with stakeholders.
Do You Need Financial Statements?
Yes. As a business owner, there is no question that you need financial statements to operate—both strategically and legally.
Though you are only required to file taxes once per year, it’s a good idea to compile financial statements into a report more frequently. Many businesses conduct financial reporting on a semi-annual or quarterly basis. The interval between financial reports should be determined by businesses on a case-by-case basis, as needed.
Financial Statements and Reporting in Winnipeg
Are you a business owner looking for a Winnipeg accountant who can offer support managing your financial statements and reporting? At Compass Accounting, our professional and experienced team is ready to educate you and help keep you on track. For more information or to book an initial appointment, contact us directly today!