Transparency

Transparency — is the availability of information concerning the company. This information includes financial reports, market depth, and credits. Transparency is very important because it allows investors to make the right decisions and choose the most profitable assets. Also, it makes the company more trustworthy in the eyes of the tax authorities and simplifies the work with financial institutions. 

Key Documents for Transparency

There are several documents required by investors in most situations. All these documents disclose essential financial information concerning the company. The transparency makes the company more attractive. When the company opens the financial information it shows that it’s safe to work with it. 

Documents required for transparency demonstrate the movement of funds, incomes, and expenses. They should be prepared by the chief accountant or the accounting department.

Here is the list of these documents:

Balance sheet is a document where all companies shareholder’s equities, assets, and liabilities are indicated. It shows all the money the company has at the moment of its publication. This document is necessary for investors to evaluate the capital structure of a company. Also, it is necessary to calculate the financial ratios.   

The balance sheet is crucial to determine the risk related to the investment in a certain company. It shows whether a company has any financial obligations or credits. Plus, it is widely used in financial modeling. 

The balance sheet includes several basic metrics:

• Liquidity — ability of assets to be quickly sold at a price close to the market.
• Leverage — utilization of the borrowed capital for the investment.
• Efficiency — ability to achieve the necessary result with the least amount of time and effort.
• Rates of return — indicator of the effectiveness of investments in assets, financial instruments, projects, or businesses. 

Income statement is a report showing the income and expenses of a company during a defined period. It includes the incomes and expenses. This document is necessary to see which activities bring profit to the company. 

This document can be prepared automatically using the specific accounting software. Such software should be licensed and regularly updated. The pirate software can work with bugs and effectuate the incorrect calculations. Before purchasing the accounting software it is necessary to test its demo version. 

How to create the income statement: 

1. Select reporting period. It can be a month, quarter, or year. 
2. Compute total revenue. The total revenue can be computed for a specific branch or a whole company. 
3. Compute Cost of Goods Sold (COGS). 
4. Compute gross profit.   
5. Compute operating expenses. These are the daily expenses related to the conduct of business.   
6. Compute income. 
7. Compute interest and taxes. This refers to all types of taxes.
8. Compute net income. This is money remaining after the payment of taxes, fees, deductions, and other obligatory payments. 

Statement of stockholders' equity is a report that discloses information on the movement of authorized capital, reserve capital, and additional capital, as well as information on changes in the amount of retained earnings of the organization and the share of its shares, repurchased from shareholders. This statement is necessary to make managerial decisions. 

Statement of comprehensive income is a document that provides a summary of a company's net assets over a specified period. The statement of comprehensive income is prepared on an accrual basis. This means that income is recognized when it is received. Similarly, expenses are recognized in the income statement as incurred, even if they were paid in the previous or subsequent reporting periods.

Importance of Transparency

Transparency is a necessary thing for a successful business. It has a positive influence on the employees, employers, clients, and investors. It implies good communication, openness, and answerability. 

Why transparency is important:

• Transparency creates trust. Investors see that the company has nothing to hide from them and there are no fraudulent activities. Usually, the fraud is accompanied by fake information on the site or the absence of any information on finances on the internet.  
• Transparency simplifies the decision-making process because both employees and employers have all the necessary information. They don’t have to waste time on unnecessary communication. 
• Transparency creates a good reputation and attracts additional clients. If the investors know that the company is profitable, they will surely be more active. Also, it creates a reputation among potential investors.   
• Transparency makes the personnel more effective because they know the real situation in the company. Moreover, the good reputation of the company will attract the most qualified employees. 
• Transparency makes the contact with tax authorities and monitoring institutions more simple. If the authorities see all the necessary data, they won’t require additional paperwork.