The major quantitative information in any organization is accounting information. Every company has to publish its annual report obeying the guidelines of corporate law of countries in which they are incorporated. Financial reporting is thus of two types, external and internal reporting.
Information published in annual reports is essentially external reporting or shareholder reporting or custodial accounting. Such information is based on ex post facto events. Hence, these are known as historic costs or actual costs. They are accurate. However, the effectiveness and efficiency of such information depends upon the speed, accuracy and integrity of data, apart from the transparency and uniformity in standards i.e., national and international. Thus, external reporting requires actual revenues and costs presented in accordance with the prescription of laws and the Generally Accepted Accounting Principles (GAAP), once again, national and international.
Internal reporting refers to internal information tailor-made to suit the needs of management at different echelons in the organization. The main purpose of internal reporting is to guide and assist management in product costing, planning, control and decision-making. In other words, these are the broad traditional areas, which include: Score keeping, attention direction and problem-solving. While external reporting addresses mainly score-keeping and very little about the other two aspects, internal reporting has a different purpose. The focus in internal reporting is on attention direction, problem-solving and score-keeping in that order. The purpose of this article is to outline, chart and address the issues of financial reporting in India. |
