What is the primary purpose of financial reporting?

The primary purpose of financial reporting is to provide financial information to external users, such as investors, creditors, and regulators, enabling them to make informed decisions. This encompasses the reporting of an organization's financial position, performance, and cash flows through standardized financial statements, including the income statement, balance sheet, and cash flow statement.

External users rely on financial reports to evaluate the organization’s financial health, profitability, and overall risk profile before making investment or lending decisions. Transparency and accuracy in financial reporting foster trust and credibility, essential for maintaining investor confidence and ensuring efficient capital markets. Therefore, option C captures the essence of financial reporting’s main objective, which is to facilitate decision-making by external parties based on reliable financial data.

While satisfying regulatory requirements, providing management with internal performance analytics, and assisting in tax planning are important aspects of financial reporting, they do not encapsulate its primary purpose as effectively as facilitating informed decision-making for external users.