Need for Financial Statements Analysis

Wake up call to prepare and make use of Financial Statements Analysis:

By CPA, Simion Kirui, Member Institute of Certified Public accountants -Kenya

Key topic questions:

1. Should Companies issue financial statement discussion and analysis when it issues financial statements?

2. Is there adequate use for Financial Statement Analysis?

3. Will one claim to have understood financial Statements in absence of Financial Statement Analysis?

4. Should Financial Statement Analysis be presented alongside Financial Statements as a good Practice especially for public entities?

Financial statement analysis is used to identify the trends and relationships between financial statement items. Both internal management and external users (such as analysts, creditors, and investors) of the financial statements need to evaluate a company's profitability, liquidity, and solvency. The most common methods used for financial statement analysis are trend analysis, common‐size statements, and ratio analysis. These methods include calculations and comparisons of the results to historical company data, competitors, or industry averages to determine the relative strength and performance of the company being analyzed.

It is notable that International Financial Reporting Standards (IFRS) does not included financial statements Analysis as amongst the keys financial statements.

The IFRS financial statement forms only include the following:

1. A Statement of Financial Position

2. A Statement of Comprehensive Income.

3. A Statement of Changes in Equity

4. A Cash Flow Statement or Statement of Cash Flows

5. Notes, comprising a summary of the significant accounting policies

As per IFRS, a financial statement form should present true and fair picture of the business affairs of an organization. Since these statements are used by different constituents of the regulators/society, they are required to present the true view of financial position of the organization.

But Are the basic...