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Main Users Of Financial Reports And Their Conflicts

1075 words - 4 pages

Identify the main users of financial reports, explaining to what use(s) they may put such reports. To what extent is there a conflict between different uses? How far are these conflicts resolved in a single set of annual accounts?The financial reports are profit and loss account, balance sheet and cash flow statement.There are many users /parties interested in the accounts of a company /organization. These include the following:The owners / shareholdersThe directors / managersThe employeesThe creditors, i.e. suppliers of goods on creditThe tax authoritiesLenders, such as banks or other financial institutionsGovernmentThe users want the accounts for a variety of purposes, for example:The owners/shareholders are mainly concerned of the profitability of the business and they therefore use them to see if they are getting a satisfactory return on their investment, and also to assess the financial health of their company/business. They may also use financial statements to assess the performance of the managers and decide the pay of managers who are employed to run the business for owners, which is part of the stewardship role of the accounting.The directors/managers are the ones to conduct the day-to-day operations and decision-making of the business and they are, arguably, the most important users of the business because they require much more information in great detail on a more frequent basis than any other users. They normally use them for making both internal and external comparisons to evaluate the performance of business. They may compare their own financial analysis of their company with industry figures (competitors) in order to ascertain their company's strengths and weaknesses. Management are also concerned with ensuring that the money invested in the company / organization is generating an adequate return and that the company / organization is able to pay its debts and remain solvent.The creditors want to know if they are likely to get paid, and look particularly at liquidity, which is the ability of the company / organization to pay its debts as they become due. They are also concerned with the viability of business.The tax authorities use them for value added tax, and income and corporation tax purposes. They are probably the one who concerned most with the genuineness of the financial statements as an underreported profit would reduce the amount of taxes being collected and the public would consequently be suffered as the money of government will have fewer funds to spend to improving the public transportation, pensions, reforms, etc.Prospective lenders use them to assess whether or not to invest their money in the company / organization.Government may wish to check whether the profit of the utility company are too excessive and thereby increasing the owner's wealth too much while reducing the spending power the consumers in a whole. And the contractors of government's profit shall be checked upon to see if they exaggeratedly quoted...

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