A financial statement is a detailed document that provides all the important information about the financial health of the business. While it reflects the result of the business and its financial position, it also helps all the stakeholders, managers, investors, as well as the finance department, to evaluate all the financial decisions taken over the period of time. These financial statements come with a detailed comparison between the company’s past and present performance, enabling businesses to predict the future and take the necessary actions for your company to grow.
So, if we have to explain the importance of financial statements in simple words, it will go like this – “It is useful in making decisions about expansion & funding. Not just this, with the help of financial statements, you can make all your future plans related to marketing, business growth, and more.”
Apart from the above-mentioned importance of financial statement analysis, it also helps disclose the financial status of your business to the authorities.
There certainly are many features of financial statements that every business in the UAE needs to consider while creating these statements. Scroll down to find out what features are we talking about…
The URRC of any Financial statament
- Understandability – The foremost and primary feature of any financial statement is that it should be easy to understand. Considering that the user has the basic knowledge and understanding of finance and accounting, these statements must make sense to them without having to read between the lines. While you are at it, you need to ensure that there is no material information left out of the statement. If there is something that is difficult to understand, it should be included.
- Relevance – The second most important feature in any financial statement is the relevance. There must be no irrelevant information in the statement. Meaning – It should contain the information based on the purpose for which the statement is being made. The information mentioned in the financial statement must help the user to come to the necessary conclusions.
- Reliability – Remember the whole point of these financial statements is to provide reliable and trustworthy information to the user. In case the information is not reliable, the decision taken considering the report will be the wrong one.
- Comparability – Every financial statement is prepared with the purpose of providing performance comparison over a period of time. This feature of the financial statement allows users to understand the trends and learn from the previous decisions to create new, better plans.
These are the 4 primary features of any financial statement. Each one of these features will help bring you closer to understanding their importance.
Let’s get to the uses of financial statements –
- Determining the financial position/performance of the company
The primary advantage of the financial statement is that it provides all the necessary information that can tell you about the performance and financial position of your business in the market till the given date. Knowing the status of your business can help many parties involved in the business and can help management to take informed decisions.
- Helps in creating policies
Another importance of these financial statements is that it helps the government in deciding the taxation & frame the regulatory policies based on the way in which your company is performing. Remember that government bodies can tax a business on the basis of income level and assets.
- Useful for the stock traders
Stock traders can get knowledge of the company’s performance through these financial statements. They indeed can adjust their quotes accordingly.
- Help investors to take a decision
Financial statements also help investors to determine how much they want to invest in your company. This is not all. It will also help decide the price per share that the investors want to invest.
These are a few points that explain how important financial statements are for businesses in the UAE. Now the question is – how to create these financial statements? Luckily, you don’t have to worry about it. There are many companies in the UAE to who you can outsource your accounting and financial management services. There are many benefits to outsourcing these accounting services to professionals which you can find out here.
At Paci Finance, we have the finest team of professionals who are well-experienced in providing accounting and financial management services. So, if you wish to create financial statements for your business in the UAE, all you have to do is consult us. You can book a free consultation today here.