What does a statement of changes in equity illustrate?

The statement of changes in equity illustrates changes in the equity section of the balance sheet. This financial statement provides a detailed account of how equity components have changed over a specific period. It captures elements such as the issuance of new shares, dividends paid to shareholders, retained earnings changes due to profits or losses for the period, and adjustments from changes in accounting policies or error corrections.

Understanding this statement is crucial for stakeholders since it reflects not only the retained earnings but also how contributions from and distributions to shareholders affect the overall equity of the business. This transparency helps users of the financial statements analyze a company's financial health and make informed decisions regarding investments or other financial activities.