Reporting Cycle

Focuses backward on past corporate activities and the current standing, whereas the planning cycle looks forward

Author: Ely Karam
Ely  Karam
Ely Karam
Ely Karam, I hold a bachelor's degree in pure mathematics with a minor in business administration at AUB. Currently, I am finishing my master's degree in finance at AUB. As for my experience, I work as an investment analyst full-time and as a financial consultant part-time. I tutor mathematics, financial accounting, and corporate finance as well.
Reviewed By: James Fazeli-Sinaki
James Fazeli-Sinaki
James Fazeli-Sinaki
Last Updated:March 21, 2024

What Is The Reporting Cycle?

The reporting cycle refers to the process through which organizations prepare, analyze, and communicate financial and non-financial information to stakeholders, such as management, investors, regulators, and others, at regular intervals.

The operating, maintaining, updating, and reporting of a company's accounts are all included in the reporting cycle. The cycle often runs alongside the budgeting and planning processes. 

It guarantees that the business is prepared to start the subsequent phase. A corporation's planning/budgeting and reporting cycles are typically separate from one another; however, they may include the same individuals.

It displays the company's present standing concerning assets, revenue, and costs after a specific period, whereas the planning cycle contains future estimates of spending and income cash flows. 

Therefore, the reporting cycle focuses backward on past corporate activities and the current standing, whereas the planning cycle looks forward.

Globally, reporting on company performance is required, especially for public firms but also for taxes. The reporting period should last no more than a year. A rule like this promotes openness in the management of public corporations. 

By purchasing shares in publicly traded corporations, investors become partial or complete owners of those businesses and may learn more about how they run by reading their financial reports. Investors may, therefore, easily watch the firm's performance thanks to the financial statements.

The income statement, cash flow statement, statement of retained profits, and statement of financial position are among the financial statements that businesses must report on. They are the fundamental reports that make it possible for the general public to comprehend the company's financial performance over a specific period.

Key Takeaways

  • Reporting cycle involves maintaining, updating, and reporting a company's financial accounts, operating alongside budgeting and planning processes.
  • There is difference between reporting and planning. Reporting focuses on past activities and current financial status, while planning predicts future spending and income.
  • Public firms must report performance annually. Reporting periods typically last no more than a year to promote transparency in public company management.
  • Reporting cycle includes accounts (transaction tracking), transactions (recording financial activities), and closure (audit and preparation of financial statements before public release).

Reporting Cycle Elements

The reporting cycle has three elements:

1. Account

The account keeps track of all company transactions and acts as the essential building block of a reporting cycle. 

There are many types of accounts, such as income, liability, equity, assets, and costs. Each account must differentiate itself from the other accounts in the company. Each account, therefore, has a different account number and name. A debit or credit balance exists in the account at all times.

2. Transaction

Both financial and non-financial transactions are possible. Cash or accrual transactions can both be used to record transactions. The size of the business and the volume of its activities can impact the number and nature of transactions.

Transactions include costs, dividend payments, asset purchases, bad debt write-offs, sales, and other income-producing activities.

The journal keeps track of transactions in reverse chronological order. Transactions are listed in the sequence in which they occur. This enables simple follow-up if someone needs a more thorough justification of the financial report's contents.

3. Closure

The preparation and publication of financial statements bring the reporting cycle to a close. Before they are made public, the reported statements need to be cross-checked for inaccuracies during an audit. Any necessary corrections will be made at this time. 

Before publication, the financial accounts are discussed with the directors. Before being made public, the final report should be reviewed by an auditor.

An auditor tries to spot inconsistencies and obvious errors in the report. The auditor examines the report's compliance with accepted accounting principles and its accuracy in presenting the firm's financial status.

If the auditor is satisfied with the report and offers an unqualified opinion, the report is made accessible to investors, shareholders, and/or the general public through mainstream media or the company's communication channels.

Why Do Reporting Cycles Matter to Businesses?

All financial records and corporate data must be current and accurate during accounting periods. To comprehend the condition of a corporation, for both internal reasons and external examination by regulating authorities, accurate, current records are essential.

These records, produced over the accounting cycle, are used by business owners or managers to assess the company's overall position in the market by evaluating performance, working capital, net income, and production.

As a result, all financial statements, ledger accounts, journal entries, and adjustments must be error-free.

These reports must be shared with financiers, investors, and shareholders since their interests are directly affected by the company's condition.

The accuracy of all financial documents, including the income statement, balance sheet, cash flow statement, and statement of retained earnings, is crucial because of this.

These reports must be available to other parties, such as governing and licensing organizations, to verify that businesses adhere to protocols and laws. Strict restrictions ensure that firms are open and honest in their interactions with others.

When and How Long Are Financial Reporting Cycles?

Four time periods are commonly used to describe financial cycles. These periods correspond to the following reporting periods:

  • Monthly basis: every month
  • Quarterly basis: every three months
  • Biyearly basis: every six months
  • Yearly basis: every year 

Twelve months are covered under annual reporting. It is a calendar year if it is measured from January to December. If the cycle begins after January 1, it is a fiscal year. 

These yearly intervals often span from April to March or March to February. Corporations themselves can choose the fiscal year for reporting.

An accounting report's reporting year is the one in which it was produced. Your financial statements should always include the compiled date and the accounting period.

What are the financial reporting cycles relevant to my industry?

The reporting period for your firm will vary based on its organizational structure, level of revenue, and the industry it belongs to. The following are the approved reporting intervals:

  • Businesses with annual or quarterly revenue of more than $6 million are eligible for monthly reports.
  • Quarterly reports are required for companies with annual revenue of $6 million or less.
  • Yearly reports are considered for companies generating little more than $500,000 and below in sales in a given year.

It's common for seasonal firms to choose to disclose their financial information after a fiscal year rather than a calendar year. For instance, to include the sales made during their peak season in December and January, retail businesses often publish their annual reports in a fiscal year that ends in February.

Reporting Cycle FAQs

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