The purpose and aim of this dissertation is to explain financial reporting in Croatia and the European Union and the ways in which it is executed. The financial reports are made to provide information about the profitability of the organization and to satisfy the needs of internal and external users. The European Union countries are using the International Financial Reporting Standards in order to obtain the necessary financial information relevant for the business. Also, an impact on the financial reporting in the European Union has the Fourth and Seventh Directives because they bring accounting to the same level in all states that are members of the EU. On the other hand, Croatia has developed its own standards for the preparation and presentation of the financial statements under the name Croatian Financial Reporting Standards which must comply with international solutions and guidelines a.k.a. International Financial Reporting Standards. The EU countries, including Croatia, encourage the development of small and medium-sized enterprises because they believe that they are going to contribute to the development of the countries economy. Therefore, the Croatian Financial Reporting Standards will have to harmonize with the International Financial Reporting Standards respecting the economic area in which small and medium-sized enterprises are operating. As well as all the profit organizations, the non-profit organizations are also required to prepare the financial reports, even though their goal is not to make a profit. The financial reports of profit and non-profit organizations have to provide a true and fair view of their business.