2.1. What is financial reporting?
The committee on terminology set by the American Institute of Certified Public Accountants has given the following definition:
“Accounting (or financial reporting) is an art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions, and events which are, in part at least, of a financial character and interpreting the result thereof.”
2.2. What is Financial Reporting Analysis?
Simply speaking financial reporting analysis is a process of making an analysis of the financial reports and trying to deduce meaningful information from the same.
Financial analysis is the process of examining a company’s performance in the context of its industry and economic environment in order to arrive at a decision or recommendation. Often, the decisions and recommendations addressed by financial analysts pertain to providing capital to companies—specifically, whether to invest in the company’s debt or equity securities and at what price. An investor in debt securities is concerned about the company’s ability to pay interest and to repay the principal lent.
An analysis can be done on the information found in:
a. Company’s audited financial statements,
b. Additional disclosures made as per the disclosure norms, and
c. Management discussion and analysis statements.