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Importance Of The Financial Report

2170 words - 9 pages

Owners, managers and outside stakeholders of a company need reliable financial information to work smarter, control their costs and gain strategic operational insights respectively. This can happen by the provision of financial reporting framework which it will be discussed in the first paragraph of the essay. Then the scope of the framework will be explained base on financial reports, reporting entities and qualitative characteristics and their users. After that, financial statement will be critical analyze based on its elements, assumptions and characteristics. At this point some limitations of the financial statement will be given. Furthermore, taking into consideration that companies are care mostly about their profit maximization and their financial health, capital maintenance and its concepts will be explained. This introduce as to the fact that companies do not show the social and environmental harms that are creating due to misallocation of information which it will be a matter of discuss.
According to Financial Accounting Standard Board (FASB) conceptual framework’s scope and purpose is to underlie the preparation and presentation of financial statements and to serve as a guide the determination of accounting issues that are not attached directly in the International Accounting Standard(Alexander & Briton, 2004, pg137). Furthermore, it shows financial information to existing and potential investors, lenders creditors and further user groups (Carlon et al., 2012, pg11) This financial information are provided through the financial reporting, the qualitative characteristics of financial information, the reporting entity, measurement of the elements of financial statements and concepts of capital and capital maintenance.
Beginning with the financial reports are documents that track how much money a company is making (Biafore, 2005, pg5). The primary users are lenders, creditors and investors who use this information for their decision making in situations like settling loans, buying, selling or holding equity. Information is also needed for the users to know how effectively and efficiency was the management of entity’s existing resources or for future net cash inflows. It was noted by the IFRS framework that financial reports are not satisfied all users’ information for their economic decision making (ICAA, 2012, pg26), however this can happen if they consider information from other sources as well. Then moving to Reporting entities provides financial information to suppliers and investors on how well the company performs and other events and transactions like, equity instruments and issuing debt. Therefore, the users can distinguish between these changes and make their own economic decisions. Moreover, users can use qualitative characteristics to identify what information is most helpful to them according to reporting entity in the financial reports (David et al., 2009, pg12). However, this financial information cannot be useful to the...

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