External reporting

External reporting means that the organization should provide reports that is intended for outside circulation i.e. to the stockholders and to the public. External reports do not contain sensitive organizational information in them unless it is necessary to achieve a particular purpose. External reporting also refers to periodically furnishing others with financial information to aid in control or decision making. Under the internal reporting, the internal auditor may provide management with an analysis of operations and internal controls within the company. For external reporting, the CPA may offer an audit opinion on the financial statements of a client includable in the annual report and Securities and Exchange Commission filings.

The published financial reports are primarily designed to fulfill the information need of the users and to discharge the company’s accountability requirements. These published reports are often referred to as the external reports. The external users are not allowed to the internal reports for reference hence it is essential for companies to prepare these external reports for external users. These external reports are prepared to disclose appropriate information to satisfy the information needs of those users.

External reporting can be examined by companies within the context of conceptual framework of financial reporting. These frameworks are designed to provide preparers, users, auditors and accounting standard setters with an explicit set of accounting concepts to guide the financial reporting. After understanding the practice style and the introspective analysis, the organization should be ready for external reporting.

External reporting can be classified under two categories. First a voluntary reporting by the organization through its mission and self imposed accountability and this may help the organization to provide external reports. The second category includes mandatory reporting which is a requirement upon the organization towards the goals. In both the cases the reporting is achieved through report cards or league tables.

Questions

• What is external reporting?
• Why is it important to provide reports to external users?