What Is Internal Reporting?

The so-called internal report refers to the unit mainly refers to the financial accounting report prepared by the enterprise according to the needs of internal management and used by internal management personnel.

Internal report

Right!

The so-called internal report refers to the unit mainly refers to the financial accounting report prepared by the enterprise according to the needs of internal management and used by internal management personnel.

At present, accounting standards and accounting generally refer to financial reporting as external reporting. In contrast to external reports, internal reports are information reports that are prepared internally by the company and passed within the company and are used by the board of directors, managers, and related personnel of the company to meet corporate decision-making and control needs and achieve corporate strategic goals.

Internal reports include internal statements and related information. Internal statements are cost statements, asset usage statements, etc. that are compiled according to the needs of the company's internal decision-making and control. The types, quantities, and formats can be designed according to the needs of the company's management. It should be clear that the boundary between the external report and the internal report is subjectively affected. If a company voluntarily discloses some statements other than those required by the accounting standards, the external report may include the above internal statements. Similarly, the information needed for internal decision-making and control of an enterprise must also include so-called external report information such as balance sheet and profit statement. From this perspective, internal reports can also include financial reports. [1]

Chinese name

Internal report

Foreign name

no

Agency

Units mainly refer to enterprises

Corresponding

External report

Application

Internal Control

Unlike the design of financial reports, the design of the internal reporting system is not done by an external accounting standards committee or a corresponding agency of the enterprise, but is designed by the enterprise manager according to his own decision-making and control needs. The theoretical basis for the internal reporting system should be the relevant decision-making information needs of internal stakeholders. Under the market economy system and the modern enterprise system, the operating decisions of an enterprise can be divided into four levels: capital management decision, asset management decision, commodity management decision, and production management decision. Based on this, the capital management report and asset management are formed. Four internal reporting systems: reports, commodity management reports and production management reports. ^[1]

Clarifying the content and system of internal reports has laid a foundation for us to understand the value and application areas of internal reports. Internal reporting, as a reporting system that provides complete information on business operations and management, has important theoretical and application values for corporate forecasting, decision making, planning, control, reflection, and evaluation, especially in the areas of internal control, management accounting, financial reporting, and financial analysis The application has broad prospects. ^[1]

(I) Application of internal reporting in internal control

Internal reporting plays a very important role in internal control. From the perspective of objectives, the internal control of an enterprise can be divided into the control of the effectiveness of operating activities, the reliability control of accounting information, and the control of compliance with relevant regulations. Among these three types of controls, the effectiveness control of operating activities belongs to internal management control, the reliability control of accounting information belongs to internal accounting control, and the control to follow relevant laws and regulations belongs to regulatory control. No matter what kind of internal control an enterprise performs, it must have control standard information and control report information. Only by comparing actual reports with control standards, can deviations be found, and then measures can be taken to correct them.

First, from the perspective of internal control objectives, the relevant and reliable accounting information required for corporate decision-making and control itself includes external reporting information and internal reporting information. In addition, the key to achieving corporate strategic goals, operating goals and operational goals lies in Internal management decisions, and the relevance and reliability of internal reporting information will determine the achievement of these internal decisions and control objectives.

Second, from the perspective of internal control elements, internal control cannot be separated from internal reports. The elements of enterprise internal control, whether it is the five elements of control environment, risk assessment, control activities, information and communication, supervision and control, or internal environment, goal setting, event identification, risk assessment, risk response, control activities, information and communication Eight elements such as control, supervision and control, or ten elements such as control environment, control variables, control standards, information reporting, performance evaluation, correction of deviations, performance evaluation, incentive mechanism, information communication, and supervision and control. The key element.

Third, from the perspective of internal control system procedures, determining control objectives, formulating control standards, preparing control reports, evaluating control performance, and providing management incentives are important procedures and steps. Among them, the preparation of the control report is the central task of internal control. The control report is actually a report formed by comparative analysis of the actual implementation according to the control objectives and standards. Internal reports are an integral part of control reports. Therefore, without an internal report, there will be no internal control report and no internal control.

(II) Application of internal reports in management accounting

At present, people mainly position management accounting as an accounting information system that meets internal management. There are two types of management accounting content: one is divided into full cost accounting, differential accounting and management control accounting; the other is forecasting and decision accounting, Planning and control accounting and responsibility accounting. Although its positioning and division conform to the nature and connotation of accounting on the surface, it essentially emphasizes how to use accounting information for forecasting, decision-making, planning, and control, rather than studying how to perform forecasting, decision-making, planning, and control. Provide accounting information. Therefore, current management accounting is not essentially accounting, nor is it an integral part of the accounting information system. The author believes that management accounting, as an important branch of accounting, should be a system that can provide decision-making useful accounting information for internal managers of the organization, and it should be management-based accounting. Therefore, the direction of management accounting reform and improvement should be to study management accounting in the framework of accounting, and to take the confirmation, measurement, recording and reporting of management accounting around the nature and objectives of management accounting as the basic content and method. The provision of management accounting reports shall be determined by the objectives and methods of management accounting, just as financial accounting shall provide financial accounting reports.

The establishment of the internal reporting system, on the one hand, is the innovation and improvement of management accounting theories and methods, and solves the nature and objectives of management accounting as an accounting information system that should report economic activities and results and provide useful information for decision-making and control. On the other hand, it is the standardization and improvement of management accounting practice, which solves the problems of unclear responsibilities and unclear tasks between management accounting practice and financial management.

The internal reports based on management accounting (or management accounting reports) mainly include various accounting statements and descriptions used internally by the enterprise for internal decision-making and control, evaluation and communication. At present, although domestic enterprises also prepare cost statements, etc., the main purpose of preparing these statements is to complete the financial accounting reporting services, and there is no complete management accounting reporting system. Therefore, for Chinese enterprises, management accounting reports are not a matter of improvement, but innovation.

The innovation of management accounting report is inseparable from management accounting goals, especially the relevance of management accounting. Looking at the relevance of accounting from the needs of internal business management, it is necessary to provide managers with all kinds of information needed for internal decision-making, control, evaluation, and communication, especially accounting information, which points the direction for the management accounting reporting system and its content innovation. . The author sets up internal reports from the perspectives of capital management, asset management, commodity management, and product management. It can be said that it is a useful attempt to innovate and develop management accounting reports.

(3) Application of internal reports in financial reports

The reliability of financial reports depends on the reliability and relevance of internal reports. Only by comprehensively and systematically understanding and mastering the company's reporting system, that is, by handling the relationship between financial reports and internal reports, can it provide a complete basis for decision-making and control. However, at present, whether it is an external stakeholder of an enterprise or an internal operation manager of an enterprise, they often attach importance to and use financial reports and despise internal reports. In fact, internal reports can not only provide information for decision-making and control in the company's internal management, but also for internal stakeholders of the company, comprehensive, systematic, relevant and reliable internal reports are also essential to improve the financial reporting system.

First, internal reporting is the foundation and supplement of financial reporting. The financial report reflects the comprehensive status report of the company's financial status and operating results, and the basis for forming the financial report is more detailed and systematic classification information in the internal report. The basis of all financial reporting information often comes from internal reports, and internal reports also supplement financial reporting information.

Second, the reliability of internal reports determines the reliability of financial reports. The reliability of internal reporting is critical to the reliability of financial reporting. Through the establishment of an internal reporting system and the emphasis on reliability, it provides useful information for the company's own business decisions and controls on the one hand, and on the other hand improves the reliability of financial reporting, thereby providing more opportunities for external stakeholders to make decisions. Reliable information.

(IV) Application of internal reports in financial analysis

Traditional financial analysis understands the information provided by accounting information providers as financial report information, and those who need financial information as external demanders of the enterprise. Therefore, financial analysis is usually understood as the need for external information of the enterprise to provide useful information for its various decisions by analyzing the financial report information. In fact, the information provided by corporate information providers is not only financial reports, but also internal reports. Corporate information demanders are not only external stakeholders, but also internal business managers. Therefore, modern financial analysis should include all corporate benefits The analysis of all the information reported by relevant parties includes both the analysis of financial reports and the analysis of internal reports.

The enterprise is the protagonist of the market economy. With the change of development goals and financial goals, in order to ensure the realization of capital appreciation goals, it will inevitably face decision-making and control of investment, financing, operation and distribution. However, whether it is management decisions such as strategic decisions, financial decisions, and business decisions, or management controls such as budget control, report control, evaluation control, and incentive control, the corresponding financial analysis information is inseparable. Therefore, financial analysis is the basis of value-based management in modern enterprises. With the transformation of business management decision-making and demand for financial analysis information, the traditional basic information of financial analysis and the basic content of financial analysis will also change. Basic financial analysis information will include all accounting information (financial report and internal report); from the perspective of relevant entities, financial analysis content will be divided into investor financial analysis, manager financial analysis, supervisor financial analysis, customer financial analysis, supplier finance Analysis, employee financial analysis, etc.