Financial reporting is a crucial tool that the senior management needs for analysis, decision-making, and strategic planning. While it still has many flaws and shortcomings, statements of financial performance can be a useful instrument for making smart business decisions, provided that companies remain transparent.
What does transparency mean for businesses? Briefly, transparency involves the degree by which a firm discloses high-quality and comprehensive information about its financial performance in a timely manner.
Corporate financial transparency includes reporting information on the firm’s regular budget and financial forecasting. By reporting such information and other financial performance indicators, investors and stakeholders can have a clear picture of the financial position of the firm at any given point.
Why is Financial Transparency Important?
The importance of transparency in financial reporting cannot be understated, especially for small and medium enterprises. For one, the statement of financial performance is used by decision makers to formulate key strategies and action plans, as well as monitor the company’s growth and progress.
In addition, investors rely on the information presented in your business financial reports for making investment decisions. As former US Securities and Exchange Commission Chair Mary Jo White said in a keynote address at the 2015 AICPA National Conference in 2015, high-quality reporting is crucial: “If there is even one weak link in the financial reporting chain, investors and the integrity of our markets suffer.”
Here are several ways by which you can ensure transparency in your financial reports, as well as maintain accuracy and reliability.
1. Financial Process Improvements
Review your existing finance and accounting procedures to reduce errors in your financial reports. For instance, make sure that all entries in your financial reports are supported by valid documents. (Read our guide on how to accurately report financial results here.)
Since the implementation of the Sarbanes-Oxley Act in the US, audit committees have played a larger role in the preparation of reliable financial reports among public entities. In this regard, auditors must diligently perform their task of reviewing internal controls, challenging major decisions by the senior management (as necessary), and reporting to shareholders, among others.
3. Business Analytics
Use appropriate tools and technologies such as business intelligence tools and analytics to get reliable data. By maintaining the integrity of your data, you become better equipped to make sound decisions and business strategies.
Another way to ensure the accuracy of your financial reports is by hiring an outsourcing partner to take care of labour-intensive management reporting tasks. By outsourcing preparation of financial statements and other basic finance and accounting functions, you can free up your in-house teams for high-end tasks.