We will discuss complete Users of Financial Statements.The financial statements referred to are the general purpose financial statements of business entities that are prepared and presented at least annually.They are directed towards satisfying the common information needs of a wide range of users. Some of the users, such as a company’s bankers, might be able to obtain additional information to that contained in the financial statements. This additional information might be of a financial nature – for instance budgeted cash flows with budget/actual comparisons – or it might be of a non-financia 1 nature – the state of the company’s order book.
However, many users need to base their decisions on the published financial statements and the regulatory bodies endeavour to ensure that the information in the financial statements is useful. As long ago as 1975 the Accounting Standards Committee, in The Corporate Heport. stated that the fundamental objective of corporate reports was to communicate economic measurements of and information about the resources and performance of the reporting entity useful to those having reasonable rights to such information.
List Of Complete Users of financial statements.
The Corporate Report (1975) identified the following groups as having a reasonable
right to information:
► equity investors, including existing and piospective investors
► loan creditors for short- and long-term loans including existing and prospective creditors
► employees, including existing and prospective employees
► analysts and advisors representing the press and/or specific user groups such as trade creditors. Examples include credit rating agencies
► business contacts, including suppliers, customers and competitors
► government, including revenue raising and regulatory departments
► the public, including political parties, environmental and consumer protection groups.
Users and their information needs
The information needs of each of the groups in the ASB Statement of Principles are as
► Investors: require information to assist them to decide whether to buy, hold or sell shares. This implies that they need to estimate the ability of the enterprise to pay dividends and the risk inherent in their investment
► Lenders: require information to assist them to assess whether their interest will he paid and their capital repaid
► Employees: require information to assess whether their jobs will he secure and their remuneration and pensions paid
► Suppliers: require information to assess the ability of the enterprise to meet their current obligations
► Customers: require information about the continuity of the enterprise. The extent of their interest will be affected by the importance of the enterprise to their own business activities
► Governments and their agencies: require information to assist them in formulating economic and revenue-raising policies and in regulating the commercial activities of enterprises
► Public: require information for a wide variety of reasons eg to assess the likely effect on the local economy of the enterprise’s plans for growth or contraction.
Characteristics of useful information
Users need information to be able to compare actual results with past predictions in order to evaluate past and present events and to be able to make predictions about future events. Information therefore needs to be relevant to allow them to do this.
By relevant, we mean that information should be as relevant as possible within the constraints of historical cost reporting. It might be that a cash forecast would be more relevant than a profit and loss account of the past year for making dividend predictions but such information is not provided within the normal information published by companies.