What is External Financial Reporting?

External financial reporting includes financial statements, financial summaries, and related disclosures that are issued to users outside of a reporting entity. This information is typically used by creditors, lenders, and investors to judge the performance of a business, as well as its ability to repay debts. External financial reports may be audited, in which case the auditor’s opinion letter accompanies the financial statements. If a company is publicly-held, its external financial reports are periodically submitted to the Securities and Exchange Commission.

What are External Financial Reports?

The essential components of external financial reports are the following items:

Income statement. This report shows the revenues, expenses, and profit or loss of the reporting entity for the reporting period.
Balance sheet. This report shows the assets, liabilities, and equity of the reporting entity as of the end of the reporting period.
Statement of cash flows. This report shows the cash inflows and outflows associated with the reporting entity’s operating, investing, and financing activities for the reporting period.
Footnotes. The footnotes that accompany the financial statements contain items that are mandated by the applicable accounting framework (such as GAAP or IFRS). These footnotes include accounting policies, more detail on certain financial statement line items, and significant estimates.