Corporate Financial Reporting

Corporate financial reporting falls under the jurisdiction of the Securities and Exchange Commission (SEC), which requires yearly financial statements that clearly divulge the financial condition of corporations. As a result of the stock and speculation boom of the 1920s and the crash of the stock market, legislation was passed that set up rules and regulations designed to prevent the worst abuses of the period. After the corporate and accounting scandals of recent years, more requirements were added to the laws governing the way corporations report their financial activities.

"Transparency" is the catchphrase used to describe financial statements that meet the standards set by the SEC. The Commission has repeated and emphasized recently the necessity of full disclosure and accuracy in financial statements issued by corporations. Shifty categories that are designed to conceal the true nature of certain income and expenses are proscribed.

The Financial Statement

Generally accepted accounting principles (GAAP) are designed to bring consistency and clarity to financial reporting. The format for annual corporate financial reporting is also intended to make statements from many kinds of businesses uniform so financial categories are universally understood. An income statement, cash flow statement, and a balance sheet constitute the yearly statement of a corporation.

Not every possible piece of information about a business is found in the financial statement, however. The proxy statement, also filed with the Commission, contains interesting facts about salaries and compensation for higher-level executives. Both the proxy statement and the financial statement can be found on the Commission's database, Electronic Data Gathering, Analysis, and Retrieval (EDGAR).