Financial of their investment is assured by the

Financial statements are prepared and presented for external users by many entities globally, to provide information that is useful in making economic decisions. Conceptual Framework for Financial Reporting 2010 presents a classification of different users of financial statements that include six classes of users (investors, employees, lenders and suppliers, customers, governments, and their agencies and public), with their information needs.

 

Investors and potential investors consider whether to invest or disinvest in the business based on expected returns. Essentially, this group is interested in the potential profit and security of their committed investment. Short-term equity investors value dividends and interest, while longer term investors assess future earnings and market price increases. Future profits may be estimated from income statements. The security of their investment is assured by the financial strength and solvency of the company as show in the balance sheet. For more accurate assessment of risk-return relation, professional investors may utilize the statements to derive earning per share, dividend per share, price earning ratio, capitalization of profits ratio. Investors particularly concern about the enterprise ability to achieve future earnings and to increase its wealth, taking in consideration future cash flows.  (ISAB, OB3)

 

Suppliers and Trade Creditors are interested in the financial stability of entity in terms of cash flow and entity’s capacity to pay short-term liabilities. This is done with analysis of current and future entity’s cash flow and profitability. Suppliers may also consider fit with company’s future strategy. (FRS1, Statement of Cash Flow)

 

Employees and trade unions are interested in the stability and profitability of the employer entity. This will increase their interest and involvement in the company. Moreover, financial information can be used to discuss salary and future conditions of employment such as remunerations and extent of employment opportunities.

 

Government refers to tax and regulatory authorities. Tax authorities determine credibility of tax returns filed on behalf of the entity. Regulatory authorities for ensuring that the company’s disclosure of accounting information is in accordance with rules and regulations to protect interest of shareholder, who rely on such information to form decisions.

 

Customers use financial statements to assess entity’s short-term and long-term financial health and its potential to supply stable, continuous supply of products, warranty obligations and good after-sales services. They might be also interested in entity’s environmental polices to determine corporate sustainability.  

 

Public refers to anyone outside the company such as researchers, students, analysts, and others who are interested in the effects of a company on the economy, environment, and the local community.

 

 

 

 

 

 

 

Managers are not included in this list as they can access additional public and internal information of the entity, that helps them carry out their planning, decision-making and control responsibilities. Therefore, there is no obligation to rely on general purpose financial reports. (ISAB, OB9) Management can decide the style and content of such additional information to accommodate their needs, for instance, statements done based on managerial accounting.

 

Competitors refer to entities competing against a business will attempt to gain access to its financial statements to evaluate its financial condition. The knowledge they gain could alter their competitive strategies. Financial reports are not made to outline the value of an entity; however they present information to competitors to estimate the value. (ISAB, OB7) This is because statements are constructed on estimates, judgements, and models rather than exact data (ISAB, OB11).

 

Environmentalists and consumer protection movements are interested in the significant consequences of the entity on the environment. This is usually based on key performance indicators and environmental polices entity adopts. General purpose financial reports may be useful for environmentalist, but principally aimed at investors. (IRAS,OB10) Some companies operate a system of stakeholder engagement as a means of identifying areas of vulnerability and reducing reputation risk. (ICAEW, 2009) This approach may aid resolve concerns and influence extent of environmental information provided. Hence, Environmental issues can stem beyond the normal financial reporting borders. For instance, environmental externalities are excluded from statements.

 

Overall, users have disparate and plausibly contrasting information needs. Financial reporting standards aims to produce information set that will meet the needs of maximal number of primary users. However, users are encouraged to explore other sources such as economic conditions and expectations, political events and political climate, and industry and company outlooks. (ISAB, OB6)

 

 

 

 

Reference List

International Accounting Standards Board IASB. (2010). The Conceptual Framework for Financial Reporting: Introduction Retrieved from http://eifrs.ifrs.org/eifrs/ViewContent?collection=2018_Annotated_Blue_Book&fn=Conceptual_Framework_HTML_USE_ONLY.html&scrollTo=F15147321

 

http://sceco.ub.ro/index.php/SCECO/article/view/17/17

 

https://www.icaew.com/-/media/corporate/files/technical/sustainability/environmental-issues-and-annual-financial-reporting-2009.ashx

 

 

 

 

 Financial statements are prepared and presented for external users by many entities globally, to provide information that is useful in making economic decisions. Conceptual Framework for Financial Reporting 2010 presents a classification of different users of financial statements that include six classes of users (investors, employees, lenders and suppliers, customers, governments, and their agencies and public), with their information needs.

 

Investors and potential investors consider whether to invest or disinvest in the business based on expected returns. Essentially, this group is interested in the potential profit and security of their committed investment. Short-term equity investors value dividends and interest, while longer term investors assess future earnings and market price increases. Future profits may be estimated from income statements. The security of their investment is assured by the financial strength and solvency of the company as show in the balance sheet. For more accurate assessment of risk-return relation, professional investors may utilize the statements to derive earning per share, dividend per share, price earning ratio, capitalization of profits ratio. Investors particularly concern about the enterprise ability to achieve future earnings and to increase its wealth, taking in consideration future cash flows.  (ISAB, OB3)

 

Suppliers and Trade Creditors are interested in the financial stability of entity in terms of cash flow and entity’s capacity to pay short-term liabilities. This is done with analysis of current and future entity’s cash flow and profitability. Suppliers may also consider fit with company’s future strategy. (FRS1, Statement of Cash Flow)

 

Employees and trade unions are interested in the stability and profitability of the employer entity. This will increase their interest and involvement in the company. Moreover, financial information can be used to discuss salary and future conditions of employment such as remunerations and extent of employment opportunities.

 

Government refers to tax and regulatory authorities. Tax authorities determine credibility of tax returns filed on behalf of the entity. Regulatory authorities for ensuring that the company’s disclosure of accounting information is in accordance with rules and regulations to protect interest of shareholder, who rely on such information to form decisions.

 

Customers use financial statements to assess entity’s short-term and long-term financial health and its potential to supply stable, continuous supply of products, warranty obligations and good after-sales services. They might be also interested in entity’s environmental polices to determine corporate sustainability.  

 

Public refers to anyone outside the company such as researchers, students, analysts, and others who are interested in the effects of a company on the economy, environment, and the local community.

 

 

 

 

 

 

 

Managers are not included in this list as they can access additional public and internal information of the entity, that helps them carry out their planning, decision-making and control responsibilities. Therefore, there is no obligation to rely on general purpose financial reports. (ISAB, OB9) Management can decide the style and content of such additional information to accommodate their needs, for instance, statements done based on managerial accounting.

 

Competitors refer to entities competing against a business will attempt to gain access to its financial statements to evaluate its financial condition. The knowledge they gain could alter their competitive strategies. Financial reports are not made to outline the value of an entity; however they present information to competitors to estimate the value. (ISAB, OB7) This is because statements are constructed on estimates, judgements, and models rather than exact data (ISAB, OB11).

 

Environmentalists and consumer protection movements are interested in the significant consequences of the entity on the environment. This is usually based on key performance indicators and environmental polices entity adopts. General purpose financial reports may be useful for environmentalist, but principally aimed at investors. (IRAS,OB10) Some companies operate a system of stakeholder engagement as a means of identifying areas of vulnerability and reducing reputation risk. (ICAEW, 2009) This approach may aid resolve concerns and influence extent of environmental information provided. Hence, Environmental issues can stem beyond the normal financial reporting borders. For instance, environmental externalities are excluded from statements.

 

Overall, users have disparate and plausibly contrasting information needs. Financial reporting standards aims to produce information set that will meet the needs of maximal number of primary users. However, users are encouraged to explore other sources such as economic conditions and expectations, political events and political climate, and industry and company outlooks. (ISAB, OB6)

 

 

 

 

Reference List

International Accounting Standards Board IASB. (2010). The Conceptual Framework for Financial Reporting: Introduction Retrieved from http://eifrs.ifrs.org/eifrs/ViewContent?collection=2018_Annotated_Blue_Book&fn=Conceptual_Framework_HTML_USE_ONLY.html&scrollTo=F15147321

 

http://sceco.ub.ro/index.php/SCECO/article/view/17/17

 

https://www.icaew.com/-/media/corporate/files/technical/sustainability/environmental-issues-and-annual-financial-reporting-2009.ashx