Financial statements are not merely numbers recorded in accounting books; they are a language that reflects the company’s financial reality and presents its performance in an accurate and transparent way.
Through these statements, management, investors, and regulatory bodies can assess results and make decisions based on reliable data. Understanding corporate financial statements is therefore an essential step for any organization aiming to manage its resources efficiently and comply with approved accounting standards and regulations.
In this article, we explore the concept of financial statements, their main types, and how an accounting firm can support your business in preparing them according to best accounting practices.
What Are Financial Statements?
Financial statements are a set of organized financial reports presented at a specific point in time to reflect a company’s financial position and performance over a given period.
They typically include the balance sheet (statement of financial position), income statement, cash flow statement, and statement of changes in equity.
These statements aim to provide accurate and reliable information relied upon by:
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Management — to evaluate performance and make strategic decisions
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Investors — to assess profitability and financial stability
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Banks — to determine creditworthiness before granting financing
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Government authorities — to verify compliance with tax and zakat regulations
Financial statements are also prepared in accordance with internationally recognized standards such as IFRS or the Saudi Organization for Chartered and Professional Accountants (SOCPA) standards, ensuring consistency, accuracy, and proper disclosure.
Types of Financial Statements
Corporate financial statements consist of several essential reports that provide a comprehensive view of financial performance and economic standing throughout a specific period. Below are the key types:
Statement of Financial Position (Balance Sheet)
This report presents a company’s assets, liabilities, and shareholders’ equity at the end of the financial period.
It reflects the company’s ability to meet obligations and continue its operations sustainably.
Income Statement
This statement shows revenues and expenses for a specific financial period, resulting in the net profit or loss from operating and non-operating activities.
It is essential for evaluating financial performance and operational efficiency.
Statement of Comprehensive Income
This includes items not listed in the traditional income statement, such as fair value adjustments or foreign currency translation differences.
It gives a full picture of changes in equity resulting from non-operational events.
Statement of Changes in Shareholders’ Equity
This report illustrates all changes in equity during the period, including retained earnings, dividends, and capital increases.
It helps stakeholders understand the evolution of ownership and funding sources.
Statement of Cash Flows
This statement presents cash inflows and outflows divided into operating, investing, and financing activities.
It is crucial for assessing liquidity and a company’s ability to fund operations and meet obligations on time.
Notes to the Financial Statements
These are explanatory notes detailing accounting policies, contracts, commitments, and related risks.
They are an integral part of the financial statements and significantly enhance clarity and transparency.
Ultimately, financial statements allow businesses to analyze results, monitor financial trends, and make strategic decisions based on reliable data—highlighting their essential role for companies of all sizes.
The Importance of Financial Statements for Companies
Financial statements represent the cornerstone of modern financial management, serving as the primary reference for understanding the economic performance and financial position of any organization.
Their importance appears clearly across several key areas:
Assessing Financial Performance
Financial statements provide comprehensive information on revenues, expenses, and profits, helping management and investors evaluate operational efficiency and measure the achievement of financial goals.
Supporting Investment Decisions
They enable investors to analyze returns, assess risks, and estimate the fair value of companies before entering new investments, mergers, or acquisitions.
Obtaining Financing and Loans
Banks and financial institutions rely on financial statements to evaluate a company’s creditworthiness and its ability to meet future obligations, making them an essential tool for securing financing.
Compliance with Regulations and Government Oversight
Financial statements are used to prepare official reports for regulatory bodies, such as the Zakat, Tax, and Customs Authority, ensuring compliance with accounting and tax regulations in the Kingdom.
Enhancing Transparency and Credibility
They demonstrate the company’s commitment to full disclosure, strengthening investor confidence and showcasing the strength and stability of financial management over the long term.
Preparing financial statements in accordance with approved accounting standards is not merely a regulatory requirement—it is a strategic step toward ensuring growth, sustainability, and trust in the financial market.
Having worked on numerous financial statements at Ethraa Al Sharq Certified Public Accountants and Auditors, whether in preparation or audit, we have identified several recurring issues. Here are the most common.
Common Errors in Corporate Financial Statements
Despite their critical role in decision-making, many companies fall into recurring mistakes that impact the accuracy and reliability of their reports.
These errors are often the main reason behind weak financial analysis and the inability to evaluate real performance.
Below are the most common errors:
Misclassification or Incorrect Categorization
This occurs when financial items are placed incorrectly, such as mixing current and non-current assets or classifying operating expenses as capital expenditures, leading to misleading analytical results.
Ignoring Provisions or Depreciation
Failing to record necessary provisions (such as doubtful debts) or to recognize periodic depreciation of fixed assets creates an inaccurate financial picture and artificially inflates profits.
Non-Compliance with Accounting Standards
One of the most serious errors—failure to apply IFRS or SOCPA standards results in statements that cannot be compared, audited, or relied upon legally.
Using Unaudited Figures
Including financial data that has not been reviewed by a certified public accountant reduces the credibility of the statements and exposes the business to regulatory, zakat, and tax risks.
Lack of Required Disclosures
Financial statement notes are an essential component.
Their absence makes it difficult for users to understand the background of the numbers and the accounting policies applied.
To avoid these issues, financial statements must be prepared in accordance with accurate accounting standards and reviewed professionally by a certified public accountant to ensure compliance with local and international regulations.
Who Is Responsible for Preparing Financial Statements?
The responsibility for preparing financial statements primarily lies with the finance department and internal accountant, who collect accounting data, record financial transactions, and analyze them accurately to ensure the statements reflect the company’s true financial position.
Meanwhile, the responsibility for reviewing the statements and ensuring compliance with approved accounting standards lies with the certified public accountant, who independently examines the records and financial documents to issue an audit report confirming fairness and accuracy.
The management and external auditor usually work together to finalize the statements before submitting them to official authorities such as the Zakat, Tax, and Customs Authority or the Ministry of Commerce, in accordance with Saudi regulations.
In this context, Ethraa Al Sharq Certified Public Accountants and Auditors provides integrated support in preparing and auditing financial statements to ensure compliance with Saudi and international standards and to deliver the highest levels of accuracy and transparency.
Services of Ethraa Al Sharq in Preparing and Auditing Financial Statements
Ethraa Al Sharq Certified Public Accountants and Auditors in Dammam offers specialized, high-quality services in preparing and auditing financial statements, combining technical expertise with regulatory knowledge to ensure full compliance with SOCPA and IFRS.
Our services include:
Preparing annual and periodic financial statements in accordance with Saudi and international standards
Auditing and reviewing financial statements and issuing certified statutory audit reports
Preparing zakat and tax returns and following them up with the relevant authorities
Analyzing financial performance and preparing reports for investors and banks
Representing companies before regulatory bodies regarding issues related to financial statements
Providing financial and administrative consulting to enhance performance and improve transparency
Working with an experienced certified firm like Ethraa Al Sharq is not only about regulatory compliance—it is an investment in accurate financial information, reliable reporting, and sustainable financial growth.
Conclusion
Financial statements are the foundation of every successful financial and administrative process.
They translate company numbers into a clear vision of its performance and financial position.
By preparing them in accordance with approved standards such as IFRS and SOCPA, companies gain credibility that allows decision-makers to evaluate results with confidence.
Their review by a certified public accountant ensures accuracy, compliance, and protection against errors or regulatory issues.
Partnering with a specialized firm like Ethraa Al Sharq Certified Public Accountants and Auditors guarantees well-prepared, fully compliant financial statements that reflect the true performance of the organization and support its financial sustainability in the evolving Saudi business environment.
Financial statements are not just numbers—they are a business language that defines the path to success and transparency.
Frequently Asked Questions (FAQ) — Financial Statements for Companies
What are financial statements?
They are structured accounting reports prepared at the end of each financial period to show a company’s financial position, performance, and cash flows, in accordance with standards such as IFRS and SOCPA.
What are the main types of financial statements?
They include:
Statement of Financial Position (Balance Sheet)
Income Statement
Statement of Comprehensive Income
Cash Flow Statement
Statement of Changes in Equity
Plus accompanying notes explaining figures and accounting policies.
Who is responsible for preparing financial statements?
The finance department and internal accountant prepare them, while the certified public accountant reviews and confirms their accuracy before official submission.
Why is auditing financial statements necessary?
It ensures compliance with tax and regulatory requirements, strengthens investor and bank confidence, and minimizes risks of errors or legal remarks.
Why work with Ethraa Al Sharq?
Because we prepare and audit financial statements in line with Saudi and international standards, ensure accuracy and transparency, and represent companies before regulatory authorities such as the Zakat, Tax, and Customs Authority and the Ministry of Commerce.
