Best practices for financial reporting

Say you're running a growing business, and you need to know whether you're making money, where it’s going, and if you can afford a new hire. Financial reporting gives you these answers through organized records of your company’s financial activities and position.

At its core, financial reporting means documenting and communicating your business’s financial performance through standardized statements. These include the balance sheet, income statement, and cash flow statement, which together show how money moves through the business.

Financial reports guide decisions for management, investors, and regulators, helping each group interpret the numbers in ways that serve their goals. When done well, financial reporting builds trust and provides the clarity needed to move your business forward.

What is financial reporting?

Financial reporting is the process of recording, analyzing, and presenting a company’s financial information through standardized statements and disclosures. These reports enable stakeholders to make informed decisions about performance, cash flow, and overall financial health.

Most companies issue financial reports on a regular schedule. Public companies release quarterly updates, while even small businesses prepare annual reports to evaluate performance and file taxes for the fiscal year.

Financial reporting takes two main forms. Internal reporting gives management detailed insights for day-to-day decisions, such as budget tracking and departmental performance. External reporting communicates financial results to outside stakeholders including investors, creditors, and regulators.

External reporting must follow recognized accounting standards. In the U.S., companies use Generally Accepted Accounting Principles (GAAP). International companies typically follow International Financial Reporting Standards (IFRS). Both frameworks ensure consistency in how companies record and present financial data, making it easier to compare performance across businesses.

Key objectives of financial reporting

Financial reporting provides the clarity and consistency companies need to operate transparently, meet regulations, and measure progress. Its core objectives include:

• Transparency: Clear reports show how management uses company resources and communicate performance to stakeholders
• Accountability: Demonstrates that leadership is acting in the best interest of shareholders, employees, and creditors
• Decision-making support: Gives investors, lenders, and executives accurate data to guide how they allocate capital and resources
• Compliance with regulations: Ensures adherence to required standards and deadlines, reducing the risk of penalties or reputational damage
• Performance measurement: Tracks results over time, revealing trends and areas that need attention

Together, these objectives help stakeholders evaluate how effectively a company manages its finances and delivers long-term value.

Types of financial reports

Financial reporting centers on four key statements, each showing a different part of a company’s financial picture:

• Balance sheet: Shows what the company owns and owes at a specific moment
• Income statement: Reveals profitability over a defined period
• Cash flow statement: Tracks how cash moves in and out of the business
• Statement of shareholders’ equity: Explains how ownership value changes over time

These statements connect to form a complete view of financial health. The income statement’s net profit flows into retained earnings on the balance sheet, while changes in balance sheet accounts help explain cash flow results. The statement of shareholders’ equity bridges one period’s balance sheet to the next, showing exactly how value builds or declines.

Together, these statements give leaders and investors the insight needed to understand both short-term performance and long-term stability.

Balance sheet

The balance sheet captures a company’s financial position at a specific point in time. It shows what resources the company controls and how those resources are financed. The statement follows a simple equation:

Assets = Liabilities + Shareholder equity

• Assets: Resources the company owns or controls that have economic value, such as cash, inventory, equipment, and accounts receivable
• Liabilities: Obligations owed to others, including loans, accounts payable, accrued expenses, and deferred revenue
• Shareholder equity: The residual value that belongs to owners after subtracting liabilities from assets, including contributed capital and retained earnings

Most balance sheets list assets and liabilities vertically, ordered by financial liquidity, or how quickly items convert to cash. Current assets and liabilities appear first, followed by long-term items.

A healthy balance sheet shows sufficient assets to cover liabilities and a strong equity position that supports future growth.

Income statement

The income statement measures profitability over a specific period by showing whether a company earned more than it spent. It starts with total revenue and subtracts expenses to calculate net income or loss:

Net income = Revenue – Expenses

• Revenue: Money earned from selling goods or services, representing the top line of the statement
• Expenses: Costs incurred to generate revenue, such as materials, labor, rent, utilities, and depreciation
• Profit/loss: The bottom line showing net income when revenue exceeds expenses or a net loss when expenses are higher

Companies prepare income statements in two main formats:

Common metrics drawn from income statements include gross margin, operating margin, and net profit margin. Each reveals how efficiently a company converts sales into profits at different stages of operations.

Cash flow statement

The cash flow statement, also called a statement of cash flows, tracks the movement of cash in and out of the business during a specific period. While the income statement shows profitability, this report reveals liquidity—whether the company can pay its bills and invest in growth.

It organizes cash activity into three categories:

Cash flow often differs from profit because of timing. A company might record revenue before collecting payment or recognize expenses before paying them. Depreciation lowers profit without affecting cash, while buying equipment uses cash but spreads the expense over time.

To evaluate cash flow health, look first at operating cash flow. Positive results mean core operations generate cash. Compare operating cash flow to net income—healthy companies convert profit to cash efficiently, while persistent gaps may indicate collection issues or overspending.

Statement of shareholders’ equity

The statement of shareholders’ equity (also called the statement of owners’ equity) shows how ownership value changes over a period. It reconciles the beginning equity balance to the ending balance on the current balance sheet, making clear what increased or decreased equity. It typically includes:

• Common stock and additional paid-in capital from share issuances
• Retained earnings accumulated over time
• Treasury stock for shares repurchased by the company
• Other comprehensive income for certain unrealized gains or losses
• Dividends paid to shareholders

Analysts use this statement to understand how a company balances reinvestment with shareholder returns. High retained earnings can signal growth plans, while consistent dividends or buybacks emphasize returning cash to owners. Major equity moves, such as new issuances or stock-based compensation, also appear here and help explain changes between balance sheets.

Who uses financial reports and why

Financial reports serve diverse audiences, each with distinct needs and perspectives. Internal and external stakeholders rely on the same core statements but extract different insights based on their relationship with the company.

Internal stakeholders

For day-to-day operations and long-term strategy, management turns to financial reports. They track departmental performance, monitor cash flow, identify cost-saving opportunities, and make decisions about hiring, pricing, and expansion. Detailed internal reports help them spot problems early and adjust course quickly.

The board of directors fulfills oversight duties through regular financial reviews. They evaluate management's performance, assess major investment proposals, and verify the company meets its fiduciary responsibilities. These reviews help them protect shareholder interests and guide strategic direction.

External stakeholders

When evaluating potential returns and risks, investors analyze financial reports. They examine profitability trends and assess whether management deploys capital effectively. These insights drive decisions about buying, holding, or selling shares.

Before extending credit, creditors and lenders scrutinize financial reports. They focus on liquidity ratios, debt levels, and cash flow to determine whether a company can repay borrowed funds. Banks often require regular financial statements as loan conditions.

Financial reports also help regulators monitor compliance with securities laws and accounting standards. Government agencies such as the Securities and Exchange Commission (SEC) verify that public companies disclose accurate information to protect investors and maintain fair markets. Tax authorities rely on financial data to verify proper tax payments.

Assessing business stability matters to suppliers and customers, who sometimes request financial reports. Suppliers want confidence they'll receive payment for large orders, while major customers check that key vendors will remain operational and fulfill long-term contracts.

Financial reporting in action

In recent years, several well-known companies have faced scrutiny for errors or irregularities in their financial reporting—reminders of how even established businesses can run into trouble when oversight lapses.

Macy’s

The retailer discovered that an employee handling accounting for small parcel shipping costs had deliberately created false records and fabricated supporting documentation to conceal approximately $151 million in shipping expenses over a three-year period.

According to Macy’s, the “related impact” was not significant, but the company restated its financial statements to correct the error. The announcement prompted a sharp drop in the company’s stock price and renewed attention to its internal controls.

UPS

In 2024, the Securities and Exchange Commission (SEC) imposed a $45 million fine on United Parcel Service for misvaluing its UPS Freight division during goodwill impairment testing in 2019 and 2020.

The SEC found that UPS used flawed assumptions to calculate the unit’s value, which artificially boosted earnings and misled investors. The case underscored how inaccurate valuations can ripple through other financial reporting metrics.

Archer-Daniels-Midland (ADM)

Archer-Daniels-Midland revised 6 years of financial statements after discovering overstated profits in its nutrition division. The company’s CFO resigned, and ADM delayed filing its 2024 annual report.

This was ADM’s second restatement in a single year, highlighting how persistent reporting issues can erode investor confidence and attract regulatory scrutiny.

Celsius Holdings

In January 2025, the SEC announced that fitness beverage company Celsius Holdings would pay a $3 million fine for improperly accounting for stock-based awards and failing to maintain adequate disclosure controls.

The company agreed to strengthen its financial reporting procedures but did not admit wrongdoing. The case demonstrated the SEC’s continued focus on ensuring that companies of all sizes maintain accurate, transparent accounting practices.

SEC enforcement trends

In fiscal year 2024 alone, the SEC filed 583 enforcement actions, including cases involving delinquent filings and inaccurate financial disclosures. These examples reinforce how essential accurate reporting is for maintaining investor trust, regulatory compliance, and market stability.

Financial reporting standards and regulations

Standardized accounting rules ensure that financial reports are consistent and comparable across industries and countries.

GAAP vs. IFRS

Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) are the two dominant frameworks for financial reporting. Both aim to create accurate, comparable statements, but they differ in approach: GAAP follows detailed, rules-based guidance, while IFRS emphasizes principles and professional judgment.

Public companies in the U.S. must use GAAP as required by the Securities and Exchange Commission (SEC). Most other countries require or permit IFRS for publicly traded companies. Large multinational corporations often maintain both frameworks to satisfy rules in different markets.

Regulatory requirements

The SEC requires public companies to submit standardized reports on a set schedule to maintain transparency and protect investors.

• Form 10-K: Annual filing with full-year results
• Form 10-Q: Quarterly update on financial performance
• Form 8-K: Interim report for significant business events

Deadlines depend on company size. Large accelerated filers must submit Form 10-K within 60 days of fiscal year-end and Form 10-Q within 40 days of each quarter-end. Smaller filers have slightly longer windows, but missing a deadline can trigger enforcement actions.

Non-compliance carries serious consequences, including fines, trading suspensions, and potential lawsuits. Repeated or intentional violations can result in delisting or criminal penalties for executives.

Best practices for financial reporting

Strong financial reporting depends on disciplined, repeatable processes that ensure reports are accurate, timely, and trustworthy. Follow these best practices to improve reliability and build stakeholder confidence:

• Accuracy and completeness: Record every transaction correctly and include all material items that affect your company’s financial position
• Timeliness: Close the books promptly and issue reports on schedule so stakeholders can act on current data
• Consistency in methodology: Use the same accounting methods from period to period to make comparisons meaningful and trends easier to spot
• Clear documentation and notes: Explain key accounting policies, unusual transactions, and significant estimates so readers can interpret the numbers in context
• Internal controls and audit trails: Maintain systems that prevent errors and fraud while creating clear records linking each transaction to its source

Consistently applying these practices strengthens reporting accuracy, reduces compliance risk, and increases transparency across your organization.

Common challenges in financial reporting and how to solve them

Financial reporting often feels more complicated than it needs to be. Understanding these common challenges and their solutions can help your team improve accuracy, compliance, and efficiency:

• Data accuracy and integration issues: When data lives in multiple systems, errors multiply. Use automated validation tools and integrated accounting software to create one reliable source of truth.
• Keeping up with changing regulations: Accounting standards evolve constantly. Subscribe to updates from professional organizations, train staff regularly, and partner with advisors who monitor new rules.
• Managing multiple reporting requirements: Different audiences expect reports in different formats and on different schedules. Create a master calendar to track deadlines and use templates that let you reuse core data efficiently.
• Technology and system limitations: Outdated software slows reporting and limits insight. Consider upgrading to cloud-based tools that automate data entry, reconciliation, and real-time dashboards.

Addressing these issues proactively improves accuracy and timeliness while reducing the stress of deadline-driven reporting on your finance team.

Use Ramp to simplify financial reporting

Managing business expenses is tedious and time-consuming, but it doesn't have to be. Ramp combines corporate cards with expense management software that automates expense tracking, reconciliation, and reporting.

With Ramp, all your expense data flows seamlessly into one integrated platform, so you can see spending trends in real time. By consolidating all non-payroll expenses in one place, Ramp eliminates hours of manual work for finance teams and helps you close your books faster.

Try an interactive demo to see for yourself how much time and money you could save with Ramp.