Objectives of
Financial Reporting

Financial reports are only useful if companies can read them and use them to better understand their business. A financial report gives a great deal of insight into a company’s operation and can be a very useful management tool. They contribute to a broader understanding of the current financial condition of a company, they shed light on any possible problems facing the company, and they highlight areas for growth within the company.

Investors and creditors also use financial reports in order to make rational investment and credit decisions. Both parties need to look at a company’s cash flow to determine if they want to invest or offer a loan to the company. A company’s success can depend on its investors or its ability to get a loan, therefore another objective of financial reporting is to prove cash flow and show the company as a sound investment.

The intent of financial reporting is to provide information that companies can use to make sound business and economic decisions. It is not an end in itself, but rather a means of providing the knowledge needed to further the business. While financial reports are quantitative by nature the decisions that follow are qualitative. Financial reports function as a management tool within the company, highlighting any problems and areas where there is room for growth.