The primary means of communicating the financial effects of organizational activities and transactions of a company to outsiders is the financial reporting system. This reporting system includes communicating financial information through annual financial statements, as well as through reports filed with the Securities and Exchange Commission, voluntary forecasts, and other financial and nonfinancial releases. Financial statements are the main source of financial information conveyed to parties external to the company. The full set of primary financial statements consists of a balance sheet, income statement, and statement of cash flows. External financial statements have a general purpose and are designed to meet the needs of investors, creditors, and other users of the external reports. They are historical in that they communicate activities and events that have already occurred.
Financial statements are prepared on an accrual basis; they measure the impact of events and transactions when they occur and not simply when the cash consequences of such events and transactions are realized. Financial statements are useful in evaluating an enterprise's profitability, liquidity, and long-term solvency and equity structure. An analysis is conducted from the perspective of external users of financial statements and it relies on the annual report of a corporation and other publicly available information. Management, of course, also has access to extensive internal financial data, and their concerns extend to subdivisions of the enterprise, such as the performance of subsidiaries, divisions, departments, and operating functions.
External reports are intended primarily for stockholders, creditors, directors, and regulators such as the SEC. Although externally reported information is also useful to corporate management at the highest level, it is far too aggregate to be useful for decision making by lower levels of management. And even top levels of management need financial information for decision making with respect to the performance of the various components or segments of the enterprise.
It is vital that managers understand how their corporation organizes itself and at what levels the various functions such as manufacturing, marketing, finance, and research and development are performed. Managers ...
... middle of paper ...
...d profits. It is seldom possible to form a judgment about the performance of an individual segment or division by inspecting the records of only that segment or division. All financial information must be analyzed together to serve useful in and out of a corporate entity.
Financial Accounting Standards Board, 1978, Statement of Financial Accounting Concepts No.1: Objectives of Financial Reporting by Business Enterprises (Stamford, CT., Financial Accounting Standards Board).
Financial Accounting Standards Boards, 1984. Statement of Financial Accounting Concepts No.: Recognition and Measurement in Financial Statements of Business Enterprises
(Stamford, CT.: Financial Accounting Standards).
American Accounting Association, 1957. Accounting and Reporting Standards for Corporation Financial Statements and Preceding Statements and Supplements (Iowa City, Iowa: American Accounting Association).
Parker, R.H., 1979. Evolution of Corporation Financial Reporting (Nigeria, Africa: Thomas Nelson and Sons Limited).
Gray, S.J., 1984. Information Disclosure and the Multinational Corporation (New York, New York: John Wiley and Sons).
Need Writing Help?
Get feedback on grammar, clarity, concision and logic instantly.Check your paper »
- “Companies’ Annual Reports have become increasingly complex over the years, sacrificing understandability for complexity”. An annual report is a detailed report for shareholders and other business partners on a company’s activities throughout the year. It is a legal requirement from the Companies Act 1985/9 that requires companies to publish their annual report and accounts. Its purpose is to present a true and fair view of the company’s annual performance and provide financial statements that are useful to existing and potential investors, shareholders, lenders and other creditors.... [tags: Financial statements]
1067 words (3 pages)
- Introduction It seems to be a cyclical situation regarding transparency and financial quality issues, since after every economic bubble an unusually high number of firms appears to have commit irregularities in the presentation of their financial statements, after that scenario emerges many authorities at different levels of government (and professional bodies) propose new legislations, recommendations and higher standards to help reduce the “fog” in the financial statements and increase their quality and transparency.... [tags: financial management and fraud]
1432 words (4.1 pages)
- A. Discuss the benefits of the conceptual framework to preparers and users of Financial Statements. a. Preparers There are two different approaches to be applied in order to determining profits¬. These approaches are the asset/ liability approach and the revenue/ expense approach. The NZ Framework as well as most conceptual framework uses the asset/ liability approach. This framework assists preparers determining definitions of assets and liabilities and the definitions of all the other elements flow from them such as expenses, income, and equity.... [tags: Balance sheet]
732 words (2.1 pages)
- Managing an organization’s financial operation requires a good understanding of the economy and ways to maximize revenue. For an organization to operate on a daily basis, adequate cash flow is required. Poor cash management within an organization might make it hard for the organization to function because there may be shortage of cash in case of inconsistences in the market. In most companies, management is interested in the company 's cash inflows and outflows because these determines the availability of cash necessary to pay its financial obligations.... [tags: Cash flow, Financial statements]
2051 words (5.9 pages)
- 4. In this case, company wants to lend a loan from bank but its the liquidity is low, the current selling price of company’ assets could be much less than the value under normal liquidity conditions. The only way to grant the loan is to lower shareholder’s equity. For the company, so-called security asset can be treated as ‘available for sale’ and its measurement basis is at fair vale, since the investment is considered as short term, any gains or losses due to changes in the market during the period are reported as gain and loss in a separate component under shareholder’s equity in the income statement.... [tags: Balance sheet, Enron, Financial statements]
700 words (2 pages)
- Financial Statements In this paper the three major types of financial statements will be discussed. The three major types of financial statements are income statement, balance sheet and cash flow statements. It will also talk about owners’ equity. The paper will also touch on some key points in each of the three types of financial statements and owners’ equity. The income statement will report the revenues generated and expenses experienced by the firm over a certain period like a quarter or a year.... [tags: Generally Accepted Accounting Principles]
790 words (2.3 pages)
- In this essay I am going to explain and identify external users of accounting information and give detail on the main characteristics and how these characteristics and the conceptual framework develop the benefits of financial statements for external users. Financial accounting includes information distributed to external users that are not part of the enterprise, e.g. stockholders, creditors, customers and suppliers, although the information is also of interest to the company's officers and managers.... [tags: Accounting / Finance]
1596 words (4.6 pages)
The Conceptual Framework for Financial Reporting: Bega´s Current Accounting Practice of Property, Plant and Equipment
- Overview of the report This report analyses the disclosures of objective of general purpose financial reporting and the qualitative characteristics of useful financial information according to The Conceptual Framework for Financial Reporting. It investigates Bega’s current accounting practice of Property, Plant and Equipment in accordance with AASB 116 Property, Plant and Equipment, and how it satisfies the objective of general purpose financial reporting and the qualitative characteristics of useful financial.... [tags: financial statements, disclosure]
2075 words (5.9 pages)
- The preparation and presentation of financial reports is intended to convey faithful financial performance and position of an entity to its stakeholders to enable them make economic decisions. In preparing these financial reports, managers tend to make a number of assumptions in arriving at the figures they present. As in positive accounting theory (Watts and Zimmerman, 1978), there tends to be a degree of self-serving interest by managers as agents. In other words, to ensure a central point of interest, there must be some guiding principles within which financial reports are prepared to minimize the effect of this agency relation.... [tags: International Financial Reporting Standards]
1000 words (2.9 pages)
- Financial Planning and Management Summary ▲ Financial planning links the goals a business wants to achieve in the future and the resources it will need to achieve these goals. It is also concerned with evaluating the financial resource of a business. Strategic financial management is about setting the goals throughout the business and deciding what resources will be needed to achieve these goals. The main objective of financial management is to properly account for the income and expenditure of a business in order to maximise the value of that business to it’s owners.... [tags: Economic Financial Planning Strategy Summary]
1819 words (5.2 pages)