3.1 Financial Reporting: Overview

The accounting system is a data repository that tracks all the economic events that have occurred during an accounting cycle (period) and reports them in some meaningful way to the company stakeholders. For example, the statement of income is a report required by both IFRS and ASPE that measures the return on capital (assets) – it is the “how well did we do” statement. This statement shows how the company performed during its operations for a specific period of time (typically annually, monthly, or quarterly). Key elements of the income statement include various revenue, expenses, gains, and losses for continuing and discontinued operations. Combined, these numbers represent the company’s net income or loss (profit or loss) for the reporting period. Comprehensive income (an IFRS-only requirement) begins with net income and reports certain gains and losses not reported in net income such as those arising from fair value re-measurements for certain investments. The statement of changes in equity identifies details about the changes in equity due to transactions affecting shareholders as owners and investors of the company.

The IFRS and ASPE accounting standards describe which financial data is to be specifically identified and reported, out of the many thousands of transactions making up the accounting records. To comply with these standards, separate reporting of certain information either within the body of the financial statements or within the notes to the financial statements is required. That said, there is some flexibility regarding the information to be reported. For example, the terminology and the style used to present the data within the financial statements are often left to management’s discretion.

This chapter will discuss preparation of these core financial statements, identify the mandatory reporting requirements, and look at how these statements can be analyzed to assist in decision making by management, investors, and other stakeholders.