Question

Traditional financial reporting can be insufficient for proper understanding and analysis of a company. Considering the inherent gaps or potential gaps in the information normally provided:

1. How does this apply to the financial institutions and Fintech companies?

2. What are these gaps?

Answer 1

Financial Reporting is a communication which helps the users of financial statement to understand and evaluate the position and profitablity of the company. There are two types of financial reporting, traditional and integrated.

Yes,Traditional Financial Reporting can be insuffcient for proper understanding and analysis of a company and financial institutions and fintech companies do suffer because of Inherent gaps as they only end up taking into the account only the information of financial nature leaving aside other important and evolved matters like social responsibility, corporate responsibility,management commentary etc.

The gaps are

1) Only Structured information : The major motive of traditional financial reporting is to take into the consideration only structured information about financial position of the institutions leaving aside sustainable reporting, management commentary along with corporate governance.

2) lacks Social Responsibility : Traditional reporting aims only to those stakeholders who are important. It fails to engage more stakeholders amongst different facets of an organisation. It lacks Social reponsibility as it doesn't involve society at large into its operation. Therefore, financial organisations miss the opportunity of building good reputation in the society

3) Financial Nature Information : Financial Institutions end up gathering only business transactions. Hence, mangement of financial institutions will keep an outdated approach and will take into consideration only financial results of the company keeping aside other aspects such as environment, available resources etc.

4) Fails To Answer Non financial Aspects : With modernisation, Financial Institutions follo traditional reporting standards have failed to answer the non financial aspects of the organisation in a long run.The stakeholders want to know in which organisation they are investing and their responsibilty towards the society.

5) Judgements of management : Traditional Reporting was based on management's judgements and due to which it lacks the comparativeness of the positions among the competitors.