Definition of External Financial Statements
External financial statements are those distributed outside of the company’s management. Some of the recipients of the external financial statements include the following:
- Current investors and lenders
- Potential investors and lenders
- Financial analysts
- Credit rating organizations
- Some customers and suppliers
- Government agencies
Since the external financial statements are likely to be compared to those of other corporations (and to the corporation’s previously issued financial statements), it is imperative that common rules be followed. In the U.S., the common rules are known as generally accepted accounting principles (GAAP), which are established by the Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission (SEC).
Examples of External Financial Statements
The external financial statements of a U.S. corporation consist of a complete set of the following:
- income statement (statement of earnings, statement of operations)
- statement of comprehensive income
- balance sheet (statement of financial position)
- statement of cash flows (cash flow statement)
- statement of stockholders’ equity (statement of shareholders’ equity, statement of equity)
- notes to the financial statements
