What is External Reporting?

External reporting is the issuance of financial statements to parties outside of the reporting entity. The recipients are usually investors, creditors, and lenders, who need the information to evaluate the financial condition of the reporting entity. At its most formal level, external reporting involves the issuance of a complete set of audited financial statements, which include an income statement, balance sheet, and statement of cash flows. The recipients may allow the issuance of unaudited financial statements for interim periods.

The Reason for External Reporting

There are several reasons why an organization engages in external reporting. First, it provides crucial financial information to an entity’s stakeholders, which they need to decide whether they should continue supporting it with credit or investments. Non-investing parties, such as the local government, also need external reporting to determine whether the reporting entity is conducting its operations in a manner that meets local regulations. Another reason for external reporting is community relations, since other stakeholders who are impacted by the business want to know what it is doing, from the perspectives of environmental impact, layoffs, and local expansion plans.

Public Company External Reporting

The most elaborate external reporting is conducted by publicly-held companies, which must issue the annual Form 10-K and quarterly Form 10-Q to the Securities and Exchange Commission. Both forms include a complete set of financial statements and extensive disclosures. They must also issue a Form 8-K when certain types of events occur. The reporting requirements for these forms are extremely detailed.