Roles of Financial Reporting
Though it is said organizations have an indefinite life, in reality they do have a particular life cycle. These are birth, growth, plateau and finally no growth or decline. This is not unlike a product life cycle. In periods of slow growth, product extensions are introduced to increase its life span. Similarly, companies need to make changes, adapt to new technologies and economic scenarios to survive and earn profits. Some companies are bought over, and while their names stay, the businesses change dramatically.
So corporations that have lasted a long time (e.g. Coke, IBM, Unilever, and Microsoft) have perfected to a great degree to adapt rapidly to changes in the marketplace and stay ahead in the game. Apple is an excellent example of a company that reinvented itself, introduced a slew of new products that redefined the market. It is easy for companies to get complacent and be immune to changes in the industry. Companies need to reassess their processes from time to time to stay efficient and increase profitability.Financial reports play an important role in helping monitor an organization’s health, attract investors and keep stakeholders. The information needs to be accurate and relevant. Consistent practices tend to lead to accurate reports which are useful and relevant to the user. Regular cycles of these processes lead to capturing of accurate information, say, a weekly analysis of financial reports.