How Reliable is your Company's Financial Reports?  

Financial Report is like a score-card containing the performance of an organisation. The revenue is the income earned or generated while the expenditures are expenses due and paid leaving the balance as profit earned or loss made over the period. The company is growing if its making consistent profit and losing its capital when its recording losses. Also, there is a report that shows what belongs to the company and what belongs to others.

However, the amount of reliability to be placed on this report depends on accuracy of the information contained therein and the process of generating the report. Most companies that have collapsed over the years were as a result of spending profit not made due to processes of generating the reports. What guarantee good quality of financial reports is a strong Internal Control System (ICS).

Internal Control System, as defined by the IAS, are management controls, financial and otherwise, instituted to ensure completeness, accuracy and validity of accounting transactions and to safeguard the company’s assets. When these controls are weak or not available, these are some of the symptoms usually exhibited by the people in charge of finance/accounts:

  • Financial and Accounting Reports are produced on Microsoft Excel Format or financial reports are exported to Microsoft Excel from an accounting software for amendment (adjustment) before presentation.
  • Your Accounts department claims they run on more than one accounting software
  • Management and Financial Accounts are not generated from the same source (accounting software).
  • You are in manufacturing industry. Your accountant can not present details on material and labour cost for each product produced and has problems apportioning the overheads.
  • Report on Key Business Functions (KBFs) are not generated from the accounting sSoftware

Our Thoughts

The importance of Internal Control System (ICS) in any organizational financial reporting can not be over-emphasised. The Integrity, Credibility and Reliability of the Financial Report lies on the processes of generating the report. Company’s Financial Report will reflect the true state of affairs if the ICS are strong or unfair state, when the ICS are weak. Its the responsibility of the Management to ensure that the Company has a strong ICS.

The importance of the ICS was emphasis by the Company and Allied Matters Act 1999, (As Amended 2011) Cap C20 that “ the company’s Directors are responsible for the preparation and fair presentation of the company Financial Statements and this responsibility include Designing, implementing, and maintaining internal controls relevant to the preparation and fair presentation financial statements and of selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances”