Meaning, Requisites of Management Reporting

The reporting to management is a process of providing information to various levels of management so as to enable in judging the effectiveness of their responsibility centres and become a base for taking corrective measures, if necessary.

Meaning of Reporting:

The term “reporting” mean different things as follows:

(a) Narrating some facts

(b) Reviewing certain matter with its merits and demerits and offering comments

(c) Furnishing data at regular intervals in standardized forms

(d) Submitting specific information for particular purpose upon specific request instruction.

Management reporting refers to the formal system whereby relevant required information is furnished to management by means of reports constantly. Thus ‘report’ is the essence of any manage­ment reporting system.

The term ‘Report’ normally refers to a formal communication, which moves upwards, i.e., for factual communication by a lower level to a higher level of authority in response to orders received from higher level. Reports provide the means of checking the performance. A person, who is issued with orders or instructions to do certain things, should report back what he has done in compliance thereof. Reports may be oral or written and also routine or special.

Objectives or Purpose of Reporting to management

A Management Accountant has to prepare the report for the following purposes.

1. Means of Communication: A report is used as a means of upward communication. A report is prepared and submitted to someone who needs that information for carrying out functions of management.
2. Satisfy Interested Parties: The interested parties of management report are top management executives, government agencies, shareholders, creditors, customers and general public. Different types of management reports are prepared to satisfy above mentioned interested parties.
3. Serve as a Record: Reports provide valuable and important records for reference in the future. As the facts and investigations are recorded with utmost care, they become a rich source of information for the future.
4. Legal Requirements: Some reports are prepared to satisfy the legal requirements. The annual reports of company accounts is prepared to furnished the same to the shareholders of the company under Companies Act 1946. Likewise, audit report of the company accounts is submitted before the income tax authorities under Income Tax Act 1961.
5. Develop Public Relations: Reports of general progress of business and utilization of national resources are prepared and presented before the public. It is useful for increasing the goodwill of the company and developing public relations.
6. Basis to Measure Performance: The performance of each employee is prepared in a report form. In some cases, group or department performance is prepared in a report form. The individual performance report is used for promotion and incentives. The group performance report is used for giving bonus.
7. Control: Reports are the basis of control process. On the basis of reports, actions are initiated and instructions are given to improve the performance.

Requisites of a Good Reporting System:

A good reporting system is a better guide and effective tool for efficient managerial decision ­making.

Hence, the essentials of a good reporting system are as follows:

1. Proper Form:

In order to facilitate decision-making the information supplied should be in proper form. The style and layout of a report depend upon the needs of the individual who will use the same. The report may be submitted in the form of narration [written statement of facts], statisti­cal tabulations, graphs, charts, etc.

2. Proper Time:

Promptness is very important because information delayed is information denied. Reports are meant for action and when adverse tendencies or events are noticed, actions should follow forthwith. The sooner the report is made, the quicker the corrective action be taken.

3. Proper Flow of Information:

The information should flow from the right level of authority to the level of authority where the decisions are to be made. Further complete and consistent infor­mation should flow in a systematic manner.

4. Flexibility:

The system should be capable of being adjusted according to the requirements of the user. For example, production manager should be provided with information relating to his division or area of control only.

5. Facilitation of Evaluation:

The system should distinctively report deviations from standards or estimates. Controllable factors should be distinguished from non-controllable factors and re­ported separately. A good reporting system should give information required for the evaluation of each manager’s area of responsibility in relation to the goals of the organization.

6. Economy:

There is a cost for rendering information and such cost should be compared with benefits derived from the report or loss sustained by not having the report. Economy is an informa­tion aspect to be considered while developing reporting system.

Purpose of Reporting for Management:

The reports serve the following purposes:

(a) Communication Mode:

The basic object of preparation of reports for reporting purposes is to facilitate upward communication. Through reports someone who has some information communicates to higher authority who needs that information for carrying out various functions of management.

Reports serve as a communication mode to communicate relevant information to management executives, government agencies, shareholders, creditors, suppliers, customers or general public. Reports also communicate authentic information to research scholars who are interested in collecting data information for various research matters. Hence reports can be considered most effective communication mode.

(b) Helpful in Record Keeping:

Reports also facilitate record keeping function. Since reports provide valuable and authentic records for future references. Reports usually include facts and findings of investigations which can be stored as valuable information. These stored facts can be of great importance in future.

(c) Meeting Legal Requirements:

Some of the reports are also prepared and submitted to fulfill legal requirements. For instance, annual report of company’s accounts is necessary to be furnished to the shareholders under Companies Act 1956. Similarly, audit report of accounts must accompany the Income tax return under Income tax Act, 1961, Interim reports are submitted quarterly as per clause 41 of listing agreement.

(d) Provides Basis for Taking Important Decisions:

Reports usually contain factual information related with some event. Reports kept as a valuable record also help management in providing basis for taking important decision. For instance salesman’s report and dealers report will provide basis for taking any decision related with sales matters.

(e) Develop Public Relations:

Sometimes reports are also written and submitted presenting information of general progress of business and utilization of national resources. These reports are usually available for general public and help in enhancing goodwill of the reporting entity and hence in developing public relations.

(f) Provide Basis to Measure Performance:

Routine reports about the work performance of employees help the management to measure performance in view of the objects. The reports on performance of employees shall also become basis for promotions and incentives.

(g) Facilitates Control:

Reports also facilitate control process in the organisation. Reports provide a relevant basis of any control process. In normal course of the business, it is on the basis of reports, actions are initiated and instructions are given to improve the performance.

(h) Feedback:

Reports also help the lower levels in providing feedback to the management in form of reactions on decisions taken by the management.

Author and Reece have rightly said, “Reports on what has happened in a business, are useful for two general purposes which may be called information and control respectively.”

So information reports are useful to tell management what is going on. Control reports on the other hand, are useful in assessing personal performance and economic performance.

(i) Help in Combating Changes:

Since business itself is dynamic one, business conditions keep on changing, they pose a serious challenge to the existence of a corporate entity. Reports aim at analyzing the impact of business dynamics and how best changes can be exploited to the benefit of the company.

(j) Facilitates Coordination:

Reporting also helps in coordinating the activities in an organisation. The act of coordinating can be best performed with the help of various reports.

(k) Contact with Users:

Reports act as a mean to remain in touch with consumers, suppliers, shareholders and Government agencies.