# Financial Statements

## Reporting Financial Activity


### Learning Outcomes

By the end of this section, you will be able to:
1. Identify the most common types of accounting periods.
2. Outline key considerations and accounting principles that dictate the timing of financial reporting.
3. Describe the SEC reporting requirements relevant to financial statements.
4. Identify the key elements of a company annual report.

### Defining Accounting Periods

An accounting period can be any period of time, but the most common accounting periods are months, quarters, and a year. Accounting periods are important, particularly in accrual accounting, so there are clear cutoffs for recording transactions.
It is important to note that Generally Accepted Accounting Principles (GAAP) require companies to provide quarterly financial statements. However, most firms, even those not covered by GAAP, prepare financial statements monthly in order to provide timely data to their financial statement users both internally and externally.

### Time Period Principle

Providing information to financial statement users in a timely fashion brings us to our next key topic, which is the time period principle. In order for information to be useful, it must be timely. This means that financial statement users need to get the statements quickly enough to be able to make relevant decisions with them. Providing statements on a timely basis is the foundation of the time period accounting principle.

### Fiscal versus Calendar Year

Though a firm may present financial statements monthly, quarterly, and annually, not all time periods are created equal. Firms have the option to choose between a fiscal and a calendar year. The calendar year, which begins January 1 and ends December 31, is the traditional year we are accustomed to. The calendar year, however, doesn’t always work well with a firm’s business cycle. Due to seasonality or other factors, a firm may choose to adopt a fiscal year with their own beginning and end date. For example, a firm may choose to start its fiscal year on June 1 and end it on May 31. A firm can opt to change from a fiscal to a calendar year or vice versa but must only do so for a justifiable reason.

### The Annual Report

An annual report is part of the 10-K filing that publicly traded firms must provide to the SEC and investors each year. The report details the firm’s operations and performance for the year and its current financial conditions. The report contains general company information, the firm’s financial statements, notes to the financial statements, various required disclosures pertaining to accounting policies, the management discussion and analysis (MD&A) statement, a letter from the CEO to the shareholders, and the firm’s audit report.

### SEC Reporting Requirements

The Securities and Exchange Commission (SEC) requires publicly traded firms to regularly provide several reports. The two most common are the 10-K and quarterly report (10-Q). Certain unique events also require an additional filing called an 8-K. There are many events that might require reporting. A few key examples include changes to rights of shareholders, changes in control of the company, and amendments to the company charter or bylaws.
The quarterly report is much like the annual report already discussed. It contains the firm’s financial statements, required accounting disclosures, statements on internal control, and a management discussion and analysis (MD&A) letter. It does not contain an auditor’s report, as firms are not audited on a quarterly basis. Quarterly reports are helpful to investors because they provide information on a timely enough basis to be relevant.

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Publicly traded firms must file company and financial data with the Securities and Exchange Commission (SEC) on a regular basis. Key reports include the quarterly report, called a 10-Q, and the annual report, called a 10-K.

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This chapter supports some of the Learning Outcome Statements (LOS) in this CFA® Level I Study Session. Reference with permission of CFA Institute.