External reporting requires an entity to provide well documented reports that can be circulated amongst the public and stockholders. Such a report does not include confidential information about the organization unless it is important to achieve a specific purpose. External reporting is also about furnishing shareholders and public with finance related information on a periodic basis in order to assist decision and control related process.
The finance related reports that are published are crafted primarily for meeting the information requirements of different users as well as for discharging the entity’s accountability needs. Companies are allowed to examine external reporting as per the conceptual structure of finance reporting. These structures are crafted to offer users, prepares, standard setters and auditors with comprehensive concepts pertaining to accounting for the purpose of guiding reporting. Once the organization has understood the practicing style as well as introspection related analysis, it should gear up for external reporting.
External Reporting Classification
External reporting is classified into two different categories. The first category involves reporting done on a voluntary basis by the entity in view of its aim as well as for the purpose of accountability, which may further assist the entity in providing external reports. The second category revolves around reporting on a mandatory basis, which is important for an entity so that it achieves its goals. Under both the categories reporting is done via league report cards.
Reasons for External Reporting
A company opts for external reporting for a number of reasons. Firstly, an external report is meant for the public so that they come to know more about the financial health and operations of the company. Secondly, external reports are also used for attracting interested and potential customers as well as investors. In addition to this, an external report consists of data and information that can be used by industry experts and analysts for assessing the existing condition of the entity.
Even though there is no specific way of preparing an external report, an entity should stick to some important points, which can help them prepare an informative and coherent report. The entities should arrange information in a logical way so that their readers are able to follow the document easily. Companies shouldn’t include any secret related information in the report.