An indispensable document for every business at the end of each year is the financial statement. This is because it contains figures that reflect the financial situation and health of the business. So, what does a financial statement include and what are its important contents?
What are financial statements?
According to Clause 1, Article 3 of the Accounting Law of 2015
"Financial statements are a system of economic and financial information of an accounting entity, presented according to the forms prescribed in accounting standards and accounting regulations."
Financial statements typically include comprehensive reports on the owner's assets and business performance over different periods. In addition, financial statements provide information related to a company's financial activities, such as assets, liabilities, equity, revenue, profit, cash flow, etc.
The above regulations indicate that the preparation and presentation of financial statements will be based on the provisions of Vietnamese Accounting Standards and the Accounting System. Depending on the size and specific characteristics of the enterprise, it will choose to apply the appropriate accounting system. Current accounting systems include the accounting system for micro-enterprises (Circular 132/2018), for small and medium-sized enterprises (Circular 133/2016), and the accounting system in Circular 200/2014.
For businesses with related parties that are parent or subsidiary companies, or those subject to Circular 202/2014, in addition to preparing separate financial statements, consolidated financial statements must also be prepared.
When do businesses prepare financial statements?
According to Clause 2, Article 29 of the 2015 Accounting Law:
"The preparation of financial statements The accounting unit's procedures are as follows:
a) Accounting entities must prepare financial statements at the end of each accounting year; if the law stipulates that financial statements should be prepared according to a different accounting period, the accounting entity must prepare them according to that period;
b) The preparation of financial statements must be based on data after the accounting books have been closed. The superior accounting unit must prepare consolidated financial statements or combined financial statements based on the financial statements of the accounting units within the same superior accounting unit;
c) Financial statements must be prepared correctly in terms of content, methodology, and consistent presentation across accounting periods; if financial statements differ between accounting periods, the reasons must be clearly explained;
(d) Financial statements must be signed by the preparer, the chief accountant, and the legal representative of the accounting unit. The person signing the financial statements is responsible for the content of the statements.”
The detailed contents within the financial statements.
Due to the crucial importance of financial statements to businesses in particular, and to tax authorities, government agencies, investors, etc., the government has very strict regulations regarding the required financial statements.
According to Clause 1, Article 29 of the 2015 Accounting Law:
"The financial statements of an accounting entity are used to summarize and explain the financial situation and operating results of the accounting entity. The financial statements of an accounting entity include:
a) Financial statement;
b) Report on operational results;
c) Cash flow statement;
d) Explanatory notes to the financial statements;
e) Other reports as required by law.
Based on this regulation, the Circulars guiding the Accounting System for Micro, Medium, and Small Enterprises issue detailed financial report templates. Enterprises should use the provisions of the circulars to determine the financial report templates applicable to their business.
Content of financial statements according to Circular 200/2014/TT-BTC
Article 100 of Circular 200/2014 stipulates that the set of financial statements includes the following documents: Balance Sheet, Income Statement, Cash Flow Statement, and Notes to the Financial Statements.
Accounting balance sheet
The balance sheet is a comprehensive financial statement that provides an overview of the total value of a company's existing assets and the sources of those assets at a specific point in time. The data on the balance sheet shows the total value of a company's existing assets according to their structure and the structure of the capital sources that formed those assets. Based on the balance sheet, it is possible to make general observations and assessments of the company's financial situation.
The information presented in the Balance Sheet includes the company's current and long-term assets, current and long-term liabilities, and sources of capital at a given point in time.
Business performance results
The income statement reflects the business performance and results of an enterprise, including results from its core business activities and results from its financial and other activities.
In other words, the income statement clearly shows the profit/loss results as well as the expenses incurred during a specific period. The indicators of the report include:
- Revenue from the sale of goods as well as the provision of services;
- The expenses incurred include: cost of goods sold, selling expenses, and administrative expenses.
- Profit: gross profit, profit before tax, and profit after tax;
- Corporate income tax payable.
Cash flow
The preparation and presentation of annual and interim cash flow statements must comply with the provisions of the accounting standard "Cash Flow Statement". Businesses should present cash flows appropriately based on the nature of each transaction.
This report helps managers and business owners understand the inflow and outflow of cash over a specific period, thereby enabling them to control cash flow. This report shows cash flow across three types of activities, including:
- Cash flow generated from the business's operations;
- Cash flow from investment activities;
- Cash flow from financing activities.
Understanding and properly assessing the role of the cash flow statement helps businesses plan and adjust cash flow and make timely business decisions.
Notes to the Financial Statements
The explanatory notes to the financial statements are an integral part of a company's financial statements, used to provide a narrative description or detailed analysis of the data presented in the Balance Sheet, Income Statement, Cash Flow Statement, and other necessary information as required by specific accounting standards.
Based on the data provided in the report, the business will analyze and synthesize the information. In accordance with regulations on the presentation of financial statements, the enterprise may also present other information if it deems it necessary to present the financial statements in a fair and accurate manner.
With the detailed information about a set of financial reports above, EXPERTIS hopes to have provided businesses with the necessary information about what financial reports are. For any further discussion or consultation, please contact EXPERTIS's Consulting Department for assistance.