Investment - Roles in Financial Reporting
Financial statements describe how lucrative a firm is and how efficiently it manages its resources and commitments, and they are read and used by a wide variety of people. 

The financial performance of a corporation important to many different people.

Company managers utilize financial performance to analyze the effectiveness of their strategies relative to historical and expected performance and comparing to competitors' performance 

Employees care because the financial success of the company effect their job security and salary. 

The company's financial performance important to investors since it influences the return of investment. 

Tax authorities may be fascinated with the company 's financial performance so that they can tax the earnings. 

Investment analyst examine the financial performance of the firm and provide recommendation to the customer whether to buy or sell securities such as bond and share issued by the company. 

One way to analyze a firm is to look at its historical performance, which is shown in a company’s financial statements.

The financial accounts demonstrate, among other things, how effective a company has been at generating earnings (profits) to repay their obligations or reward shareholders.

Accountants collect this information and convey it to investors, management, and employees through three key financial statements:

Balance sheet
Income statement 
Statement of cash flows

Key Characteristics of Financial Statements


Financial statements: Show the monetary value of the economic resources under a company’s control and how those resources have been employed to create value over time. 

Are historical and forward-looking at the same time; they represent previous performance, and they provide signals about future performance. 

Include notes that summarize the selected accounting methods, accounting practices, and other information crucial to analyzing a company’s results. These notes are a crucial component of a shareholder’s judgment. 

Describe how profitable a company is and how efficiently it handles its resources and commitments.

The value of a company’s debt and equity securities depends on its predicted success and its capacity to repay its debt and to produce returns for shareholders to compensate for the risks they assume when investing in the firm. 

Financial statements provide hints to future success by recounting the tale of past performance. They are read and utilized by a wide range of individuals for a vast variety of purposes; sooner or later, it will help you to know how to make sense of them.

Roles of Standard Setters, Auditors, and Regulators in Financial Reporting

Standards for financial reporting are often set at the national or worldwide level by accounting standard-setting groups. Standard setters, regulators, and auditors all have roles in assuring the uniformity of the financial information disclosed by corporations.

STANDARD SETTERS
Detailing one set of ‘rules’ for financial reporting are the International Financial Reporting Standards (IFRS), produced by the International Accounting Standards Board (IASB). 

Most nations require or allow corporations to produce financial reports using IFRS. Publicly traded corporations situated in the United States, however, must report following generally accepted accounting principles (US GAAP). US-based corporations report using GAAP and non-US-based companies may report using IFRS.

There is a push to have accounting standards converge and to create a single set, or at least a compatible set, of high-quality financial reporting standards worldwide. In nations that have not implemented IFRS, attempts to converge with or transition to IFRS are going place. 

When standards provide some option, the accounting system that a corporation adopts influences the reported earnings. 

A corporation may utilize aggressive accounting practices that enhance reported earnings, or it may use conservative accounting methods that decrease stated profitability.
A corporation may recognise more or less revenue, and so display higher or lower profitability, depending on how the company interprets the accounting standards.
Despite guidelines that lead corporations to generate generally similar financial statements, there is still flexibility in their selection and interpretation.
The choice of appropriate alternative accounting methods are provided in the notes, which accompany the statements and explain parts of them, including the accounting judgments underlying them. The notes are an aid to interpreting the financial statements. 

REGULATORS

Regulators assist financial reporting standards by recognising them and by enforcing rules that complement them.

Companies that issue securities traded in public markets are typically required to file reports that comply with standards specified by their country’s regulatory bodies, such as the Securities and Exchange Commission (SEC) in the United States, the Prudential Regulation Authority (PRA) in the United Kingdom, and the Financial Services Commission in South Korea. These reports comprise the financial statements and material that documents company operations. 

AUDITORS
Before they can be released, the financial accounts must first be verified by independent accountants called auditors. An auditor offers an opinion on the correctness and presentation of a firm’s financial statements, which indicates to the reader how trustworthy the statements are in reflecting the financial performance of the organization.

Opinions can range from an unqualified or clean opinion, meaning that the financial statements are prepared in accordance with the applicable accounting standards, to an adverse opinion, which indicates that the financial statements do not comply with the accounting standards and, therefore, do not provide a fair representation of the company’s performance. 

Note that a clean audit report does not suggest a financially sound organization. It just confirms that the financial statements were generated and presented accurately. In other words, an audit opinion is not a verdict on the company’s performance, but on how well it has accounted for its performance.