Frequency of Financial Statement Preparation

Financial statements are mostly prepared annually by the firms to keep track of

the firm’s financial health, operational performance and its cash flows of the business. It

provides financial information which can be a firm’s guide for making a better decision

on its business operations.

Based on the study of Howard Van Auken and Shawn Carraher (2013),

recurrence or frequent preparation of financial  statements was directly associated and

connected with whether the financial statements were utilized or used on decision

making and conversely associated with the confidence of the owner in the reliability of

their financial statements. It was stated in the study  that financial statements contain

significant financial information which is a useful guide in making decisions. Frequent

use of financial statements is really a key factor for making decisions financially by the

firms and how the owners keep track of its financial information by having the capability

and potential skills to rely on it with such confidence and courage. Therefore, the study

concluded that owners which have confidence with how reliable their financial

statements are and prepare their statements frequently or more often, really understand

the significance and importance of financial information.

According to Smith (2011), the accuracy and timeliness of financial information is

necessary and required, on the other hand, adequate management also requires a valid

assessment of the firm’s financial statements. It indicates that firms’ overall potential

factors would affect their financial information positively and it’s a better way for them to

prepare financial statements which can be made more often because of more precise
and preferred information. The use of the financial statement effectively, preferably

current data, is such an important thing to understand and to consider by the owners on

making decisions.

Javad Izadi Zadeh Darjezi and Ehsan Khansa lar (2013) also concluded to their

study that financial statements that are being reported quarterly replaced favorable and

well-timed spontaneous disclosures and managers reporting their financial statements

and their earnings frequently in the year can make such an unreasonable decision

making for their firm. It is also stated that reporting financial information more frequently

can also influence supplementary information compilation enterprise by the users and

the way of preparing a report more frequently  can make a valuable financial report.

Futhermore, Howard Van Auken and Shawn Carraher (2013) also concluded to 

their study that frequency of financial statement preparation was negatively associated

with gender. Female-owned firms were less common use and prepared financial

statements for making decisions. Thus, in a male-owned firms, it is more common to

use. Gender was previously associated with the decision which involved financial

information with the small firms. Meanwhile, in some firms in small communities,

financial statements are more frequently prepared by women owners. Findings show

that business owners  need accurate and current financial statements as a guide for

them to make decisions, but there is also a reason for some owners who are not too

confident on how their financial statements are being prepared who insist to waste their

time  on such information that is unreliable. Proper training is a must for owners to

ensure their understanding of financial statements which can be a key for making better

decisions for the firm.

 The findings on the study show that, the less frequently financial statements are

used on making decisions for the firm, the less frequently the financial statements are

prepared. Understanding the factors that influence the owners to make a better decision

is guided by how often, timely and accurate financial statements are prepared.

References:

Howard Van Auken & Shawn Carraher. (2013). Influences on Frequency of Preparation

of Financial. Journal of Innovation Management.

Javad Izadi Zadeh Darjezi & Ehsan Khansalar. (2013). Frequency of Financial Reports.

International Journal of Business and Management.

Smith, s. (2011). Beg, Borrow, and Deal? Entrepreneurs’ Choice of Financing and New

Firm Innovation.