What are the components of financial disclosure?

Published on
July 15, 2021

Every organization, private or public, enterprise or local, understands how important financial statements are to their success and reputation. The disclosure of this financial information is a vital subject area that needs to be handled with care. That is why disclosure management is an area of high interest for many organizations. Financial disclosures are not just about the data, but the overall story that the data tells to the public, investors, or regulatory agencies. 

We have created this blog not to serve as an end-all-be-all "financial statement disclosure checklist" but to help understand the general aspects of what should be included in various financial disclosures. 

Financial Disclosure vs. Statement

When researching financial disclosure to ensure that you have everything you need, you may find it confusing to see the phrase "financial statement" pop up instead. So what is the difference? 

The simplest way to describe the relationship between the terms is that a financial disclosure is a document that presents information about the state of a company's finances. A financial statement is just one of a specific kind of disclosure. Then inside the various types of financial statements, you can actually have a disclosure, which serves as a footnote to provide additional context for the financial information. 

What are the Basic Components of Financial Statements?

In general, the basic elements of financial statements are broken into four sections: income statement, cash flow statement, balance sheet, and an equity statement. 

  • Income Statement: The income statement reports on the overall performance of the business over a period of time. It is comprised of revenue, expenses, and all gains and losses that are not able to be applied in the ordinary course of business.
  • Cash Flow Statement: The cash flow statement shows the business's current financial situation from the perspective of cash moving into and out of the company. 
  • Balance Sheet: The balance sheet shows how money has been made available to the company's business and how the company utilizes the money. Balance sheets are made up of three elements, assets, liabilities, and owner's equity.
  • Shareholders' Equity Statement: This statement summarizes the changes in the capital and reserves that affect the company's equity holders over the accounting period. In essence, the shareholders' equity statement shows how the equity composition has changed over the years. 

Unfortunately, the answer isn't so cut and dry, as there are many aspects to consider. To understand what the components will be, we need to identify if it is going to be an internal or external financial statement. 

External financial statements are for investors, tax authorities, or other significant partners who require financial information. In the United States, the most common organization these statements will go to is the Securities and Exchange Commission (SEC). They have the power to enforce the Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards Foundation (IFRS) regulations. 

If you are not an organization operating inside the United States or function in another nation outside of the US, you will have to report to other financial regulatory bodies. Other major bodies around the world include the Canadian Securities Administrators, Autorité des marchés financiers, and China Securities Regulatory Commission.

Internal financial statements are much more flexible than external statements and typically include a higher analytical component, which means it is more data-focused and less narrative-driven. They may also report by division (as opposed to the company as a whole), have more detail, or be produced more frequently than external statements, which are commonly made yearly. 

As we can see, the components of financial statements have various factors dictating what they will look like. Towards the end of a quarter or year, gathering all of this data together can be a lot to handle. By utilizing Fluence Disclosure Management (FDM) powered by Sturnis365, you will be able to produce real-time financial reports on any metric or KPI - on any device. 

What are the Other Types of Disclosures? 

Outside of the four primary statements that we mentioned above, there are other forms of disclosures that are typically found in the notes or at the bottom of the main financial report. Let's take a look at these other disclosure examples.

  • Liens: A lien is when a company uses property, office equipment, or other valuable assets as collateral for an outstanding debt. An example would be a company taking out a loan and putting their office/building space up as collateral, and the bank would then put a lien on that space. This information is vital to investors and regulatory agencies.
  • Investments: It must be reported whenever a company invests in stocks, bonds, or other securities. The tricky part about recording this information is that it typically will not hold the same value for long. This is why accountants typically record the market price of an investment at the time of reporting.
  • Changes in Inventory: Any inventory losses are usually put in the notes of financial disclosure. Additionally, if an organization changes the methodology it uses to calculate inventory, that information should also be reported. 

Fluence Technologies: Financial Disclosure Management Done Right

Tracking down all of the data and records in order to properly put out a financial disclosure can lead to headaches and organizations asking, "what is the purpose of a disclosure?" That is why Fluence's Disclosure Management system works to make this entire stressful process a thing of the past. 

We have been able to reduce the time it takes to complete a close cycle by up to 80%, and easily track where people are in the month-end close process.

To start dominating your financial disclosures, contact us today.

Vicki Formosa
Director of Growth Marketing
Fluence Technologies

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