Creating effective financial reports for your business or organization can be challenging; however, the type of financial reports you create can determine the success of your business. Financial reports help business owners and managers make decisions regarding proper investments, operations and the overall running of the company. For this reason, transparency is key.
Investors want to see more transparent information about the financial data of the company in financial reports. In order to please investors and upper management, companies need to provide clear, accurate information instead of trying to skillfully hide the facts.
What Does a Transparent Report Look Like?
Before discussing the importance of transparency in financial reporting, you must first understand what the word transparent means. The basic definition of transparent is “very clear, easily understood, candid and frank”. With this definition in mind, you can assume that transparency in financial reporting requires that the financial information of the company be relayed accurately and in a way that is easily understood.
Improving transparency means relaying the “whole story” of an organization as seen through the eyes of management, including nonfinancial indicators of current and future performance, risks, and other factors necessary to better understand the business. In addition, transparency improves the availability, timeliness and relevance of information that is needed by stakeholders in the company.
The Challenge of Transparency
Transparency is not always easy. Problems in the business can create additional problems in financial reports. Generally, misstatements of information in financial reports are accidental rather than deliberate. Nevertheless, inaccurate information is almost always connected to problems in the business or miscommunication within the organization.
Businesses should not wait for a year-end audit to be surprised by inaccuracies. With the help of an accounting system (available for both for-profit and non-profit organizations), companies can review the accuracy of their financial reports and maintain transparency.
The Importance of Internal Controls and Documentation
Accurate reporting can be ensured by maintaining sufficient controls throughout the company. Standardized processes not only ensure accurate accounting and financial reporting, but it also reduces the level of complexity throughout the organization.
Internal controls are essential to the success of the operations of any type of company and organization. Internal controls assist board members and management in carrying out their financial duties and operating responsibilities, help employees create timely and accurate financial reports, and improve the effectiveness and efficiency of operations.
Through accurate reporting and the establishment of internal controls, companies can maintain the transparency needed in financial reports. Learn more about the importance of transparency in financial reporting by reading our blog, “Using Accounting to Make Your Organization More Accountable”.