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Financial report: Definition and significance

Wednesday 23, 10 2019
Knowing how to read and analyze financial statements (FS) is really important for every accountant and business leader. So, what is financial statement and its importance? Below is some basic information to help accountants and business leaders better understand the fiscal report.
Financial report: Definition and significance

1. Definition of financial statement (FS)

Financial statements are considered as a system of tables, demonstrating information about the financial background, business and cash flows of enterprises. Financial statements are the most comprehensive reports on the assets, equity and liabilities as well as the financial situation, business results of the enterprise. In other words, financial statements are means to present the profitability and the current financial ability of certain businesses to those who are interested (business owners, investors, lenders, tax authorities and institutions, etc.)

According to the tax authorities in Vietnam, all enterprises operating in any economic sectors are required to prepare and present annual financial statements. For companies or corporations with affiliated units, in addition to the annual financial statements, they must also submit consolidated financial statements at the end of the annual accounting period, based on the financial statements of the related companies.

What is the case for state-owned enterprises and businesses listed on the stock market? Apart from the annual financial statements, these enterprises must prepare the additional mid-year financial statements (quarterly reports - except for fourth quarter) under the comprehensive form. Particularly, corporations directly owned by the State and State-owned accounting units must prepare a consolidated financial statement (interim consolidated financial statements have been required to be implemented since 2008).

2. Submission time of financial statements for businesses in Vietnam

Time for submission of financial statements for enterprises is as follows:
 
    State-owned enterprises:
-  20 days from the end of the quarter - for quarterly reports.
-  30 days from the end of the fiscal year - for annual reports.
 
   Corporations:
- 45 days from the end of the quarter - for quarterly reports.
- 90 days from the end of the fiscal year - for annual reports.
 
   State-owned accounting units:
- Submit quarterly and annual financial statements to superior accounting units within the time limit set by the superior units.
 
   Private businesses, partnerships:
- 30 days from the end of the fiscal year - for annual reports.
 
   Other businesses:
- 90 days from the end of the fiscal year.
Financial report: Definition and significance

3. Significance of financial statements

Financial statements are of the importance for the management of the business as well as the governing bodies and those who are interested in having business relationship with the company. That is most clearly shown in the following:
 
-  Financial statements are presented in a very general manner, reflecting the most concise overview of the situation of assets, finance, debts, sources of asset formation and business performance during a certain period of the enterprise. 
 
-  Financial statements provide essential financial information to assess the situation, results of production and business activities, financial status of enterprises in the last period to support the inspection and supervision of capital use and the ability to mobilize capital sources for business activities of enterprises.
 
-  Financial statements are important in analyzing, researching and discovering potential capabilities. In addition, FSs also help to make decisions on the management, business operation or investment of the owner, investors, current and future creditors of the business.
 
-  Financial statements are also extremely important grounds for proper assessment as well as formulation of economic - technical and financial plans of businesses to help improve the efficiency of capital use, business & production for businesses.
 
Because of the above-mentioned importance, financial statements are the object of great attention of investors, board of directors, creditors, superior management agencies and all employees of the business.

>> 12 FACTS TO REMEMBER ABOUT A COMPANY FINANCIAL REPORT

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