Financial Reporting Framework Example

A financial reporting framework is a model or set of rules to which an organization applies when recording financial information. Most modern organizations use internal templates that are customized for the particular organization, but many firms use a template that may not be fully suitable. Financial reporting applies to financial records that relate to the performance of the business as a whole or specific units such as vendors, customers, and employees. The purpose of a framework is to provide a standard way of communicating information to decision makers so that they can make well informed decisions about the allocation of resources.

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Before discussing the significance of the financial reporting framework it would be wise to define what it is. Simply put, it is the methodology by which information is communicated to decision makers in order to make informed decisions about their organization. The basic purpose of a framework is to standardize the format of reporting, provide uniformity in reporting, and reduce errors and increase productivity. However, there is no single financial reporting framework that suits all organizations. There are different needs and requirements for reporting at different levels of an organization.

Typically a financial reporting framework will include core modules such as collections, information sources, policies, agreements, and transactions. At a minimum the core modules should define the functions, responsibilities, and ownership of the units that make up the organization. Then there should be sub-functions and modules for each of these functional areas. It may also be necessary to have additional modules for reporting about the internal and external activities of the organization, providing information about the financial status of the corporation, and providing comparable information for other types of businesses. These additional modules could cover such things as insurance, investment, sales, cash management, and internal control.

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A financial reporting framework also provides guidelines and requirements for reporting and analysis the financial information. It may establish a process for organizing the information or define the format by which it will be presented. In addition, it may define the information sources, the information to be included, the basis for gathering the data, and the procedures that should be used to make the data meaningful. For example, the reporting framework may state that the reports to be provided must be statistically based, or it may require that the data are statistically significant before being presented.

Another important feature of a financial reporting framework is that it establishes what is required in terms of sources from which the information can be derived. It may establish that reports must be obtained directly from internal sources, such as the organization’s revenue records. It may also set standards for obtaining externally related information. In addition, it may establish a method by which reports can be prepared, for example by using computer software. The advantage of computer software is that it eliminates the need for a human interpretation of the information.

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A third feature found in a good financial reporting framework is that it establishes procedures for tracking the activity of the entity covered by the framework. This feature is usually most obvious in government organizations, but it can also be found in professional and nonprofit organizations. The procedure usually set forth how a reporting manager will check an item against a set of guidelines, and how he will classify it for reporting. In addition, it will establish the procedure for responding to the queries of the public about a matter under review. A good financial reporting framework will also provide guidelines for dealing with requests for additional information and for responding to the feedback from members of the public about the information provided.

A fourth feature found in a solid financial reporting framework is that it provides a mechanism for ensuring compliance with its various provisions. For example, it may set out provisions requiring that all reports be complied with, and that the organization comply with them on an annual basis. It may also set out provisions for ensuring that the procedures set forth by the organization are being followed in all cases. Such procedures generally include requirements regarding the submission of the information to the appropriate agency, and regarding the timeliness of such submission.

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A fifth and final feature found in a solid financial reporting framework example is that it establishes a process for monitoring compliance with its provisions. Such a process generally will address the various aspects of ensuring that the organization’s provision of information meets the requirement set forth in the framework. One of the primary functions of such a process is to ensure that all of the reporting elements within an organization are being reported on and analyzed as required. Such a process is generally anchored in the performance indicator model that is part of the financial reporting framework. A good framework will also provide for periodic review of the activities of an organization in terms of compliance with its provisions.