Advantages and Disadvantages of Corporate Financial Reports

Corporate financial statements are part of corporate reports that consist of financial statements and accompanying notes prepared in accordance with GAAP. Financial Statements are summaries of business transactions carried out during the financial year of the company. There are many organizations in the business world, from unprofitable individual companies, partnerships and limited partnerships to non-profit organizations whose existence is not primarily due to financial gains.

The regulations governing the preparation of financial statements mainly concern only registered organizations. It has established bodies and legal provisions defining accounting standards that consist of frameworks used in the preparation of financial statements. Reporting in GAAP and legal requirements means benefits and disadvantages for organizations and other stakeholders. International Financial Reporting Standards are increasingly adopted by the founding body of many national accounting standards, which lead to a worldwide standard of accounting standards. It is therefore worth examining the advantages and disadvantages of financial reporting to familiarize the complexities of companies and accounting professionals.


There are many benefits to corporate financial reporting, and sometimes the most important thing is that organizations can compare their individual performance with the same industry or business with others. This is due to well-founded principles, norms and standards that ensure that a financial statement is required to be followed when preparing the financial statements. Recognition of revenues, expenditures, assets and liabilities is standardized by the existing framework and all deviations can be calculated by clinical or legal steps. Organizations strive to align their financial statements to the fullest possible extent with the defined frameworks. In some countries, such as Kenya, this has been translated into a one-year competition (the award of a fire), where corporate performance is assessed in this area by professional bodies, including the National Accounting Officer's Office, with the aim of providing the firm with the best prepared financial statements. This, in turn, promotes staffing and professional development, which is a desirable aspect of corporate growth and wealth.

Investors and owners of jurisdictions, where corporate financial reporting follows a clear and clear framework, can make appropriate investment decisions. In this case, corporate reports enhance the understanding of business activities, but companies themselves keep their toes as the wider society is well informed about the expected reporting standards. This is an incentive for leaders to deliver the best possible performance and set up control measures that help the organization to comply with the framework.

Requirements for corporate financial reporting result in timely preparation of financial reports. This is desirable for the holders of quakes who might be more interested in organizations in the past than waiting for a long time before their input becomes known. When financial statements are prepared and published within the specified time, it is possible that they will take the necessary measures to correct abnormalities that may lead to undesirable outcomes. In more serious cases where a material error is discovered, it can be repaired and the necessary measures taken to avoid repeating such events should be taken.

IFRS allows for flexibility as they are based on principles rather than rules. Because the principles are based on value, companies can accept the norms that best suit their circumstances if the fair value is adequately reported. This also encourages professional development that the definition of accounting standards requires qualified scientists who are able to develop the required standards after lengthy and rigorous discussions and considerations to reach consensus.

Overall, corporate financial reporting acts as a control measure as management, owners, employees, customers, creditors, and government are subject to decision-making reports. For example, the government applies initially to the taxation of companies for financial statements prepared and audited by qualified or certified professionals. Growth tendencies can be quickly determined by comparing the series of reports over different periods.


Corporate financial reporting does not only yield desirable results. There are some undesirable consequences that need to be alleviated. Many companies are operating in consideration of costs. When preparing corporate financial statements, expertise is required in accordance with standards and regulations, and the company needs to have highly qualified professionals for this task. Fees paid to trained professionals may, in particular, prohibit smallholders from companies closely monitored by their owners. Small businesses do not have the resources to adopt standards or to train or apply trained personnel compared to larger companies. In many cases, small and medium-sized enterprises (SMEs) are tempted to comply with certain aspects of standards or regulations, leading to problems with regulatory bodies, including government.

Accepting standards that meet the company's specific circumstances will result in manipulation of reports. The disclosure of important information is in jail because there is no legal enforcement for the implementation of the standards. Even if the government imposes statutory obligations on the preparation of financial statements, there are still loopholes that may occur especially when accounting rules and legislation do not meet certain areas.

Multinational companies encounter difficulties in preparing their consolidated financial reports, especially when operations have different accounting standards and legal systems. They also face other challenges, such as dealing with exchange rates, interest rates and transfer prices, where handling such aspects can be treated differently in different countries. The existence or absence of taxation and double taxation conventions is also a challenge.


It can be stated that corporate financial reporting is essential, and profits derived from accounting standards based on principles far outweigh the disadvantages such as the freedom to produce reports in any way that could lead to financial chaos.

Source by Peter K Maina

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