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Financial statement is produced by all limited companies on an annual basis. The purpose of that is to report to parties outside of the organization on its financial performance (profit and loss account), financial position (balance sheet), and its cash flows over the period Their content and layout is influenced by company law, accounting standards and increasingly, the European union. . (Tim Sutton. 2000) In the UK, the current standards setter is the Accounting Standards Boards Board certainly for those companies listed on the stock market. When accounting standards are being formulated the standard setters have in mind the investor / shareholder whom they have categorised as the defining users. By this they mean that if information in financial report is useful to this group then it will contain the information requirement of all other users. (David Fisher.2003 Handout) Therefore, the aim of this essay is to discuss the financial statements record historic information, and then critically evaluate their usefulness to managers, current shareholders and potential investors in the part a. and also in part b will talk about the accounting standards board has determined that the investor is the defined user, critically evaluate how financial statements may differ if any of the other user groups had been designed the defined user. Financial reporting is not an end in itself but is intended to provide information that is useful in making business and economic decisions. The objectives are also affected by the characteristics and limitations of the kind of information that financial reporting can provide. The information pertains to business enterprises rather than to industries or the economy as a whole.(Anon.2003:A) Managers are on the frontline for producing accurate financial information necessary to meet the Department¡¯s strategic goal of maintaining an unqualified financial Statement audit opinion. Senior executives and also managers throughout the company are responsible for growing the business, generating profits, and ultimately creating value for the shareholders achieving an unqualified audit opinion is part of the company¡¯s management for improving financial management and supports the managers of company¡¯s objective to establish clear performance measures and hold Department of managers and employees accountable for results. Managers can receive day-to-day accounting activities and are responsible for most of company¡¯s assets reviewed during the audit. Managers demonstrate their accountability through the audit process that assures company¡¯s Management and Budget that information reported is accurate and internal controls are maintained over the resources provided to carry out their mission. Managers include their performance results and programmatic information in the financial report to help those who use the financial statements understand the financial condition and results of operations of company The new personal responsibility for corporate numbers has to be shared by all executives and upper level managers. They have to build financial literacy so they can be confident in their numbers and understand them. Only then can they communicate with their shareholders and customers. For the shareholders, the effect of financial reports on stock market behavior is a central issue of research in accounting and finance. How financial information becomes impounded in security prices and affects investment decisions. Shareholders can use Financial Ratios as Measures of Risk in the Determination of the Bid-Ask Spread they are related to market risk measures for which there is a the However, certain accounting ratios (dividend payout, asset size, and asset growth), despite being risk measures, are negatively related to the bid-ask spread. In terms of dividend payout (the ratio of the sum of cash dividends paid to common stockholders to the sum of income available for common stockholders) and cash dividends (Aharony and Swary, 1980). Eades (1982) finds a clearly significant and negative relation between dividends and risk, consistent with that reported by Beaver et al. (1970), and Rozeff (1982) reports that an increase in dividend payout is associated with a decline in risk. Thus, as the dividend payouts increase, prices increase because this can be interpreted as ¡°good news¡± by investors, with the expectation for the firm. For the potential investors, Financial reporting provide information to help present and potential investors and creditors and other users in assessing the amounts, timing, and uncertainty of prospective cash receipts from dividends or interest and the proceeds from the sale, redemption, or maturity of securities or loans.(Anon,2003:B) Since investors' and creditors' cash flows are related to enterprise cash flows, financial reporting provide information to help investors, creditors, and others assess the amounts, timing, and uncertainty of prospective net cash inflows to the related enterprise. Investors" and "creditors are used broadly and include not only those who have or contemplate having a claim to enterprise resources but also those who advise or represent them. Although investment and credit decisions reflect investors' and creditors' expectations about future enterprise performance, those expectations are commonly based at least partly on evaluations of past enterprise performance. Financial statement provide information about the economic resources of an enterprise, the claims to those resources (obligations of the enterprise to transfer resources to other entities and owners' equity), and the effects of transactions, events, and circumstances that change its resources and claims to those resources, which will very useful for the potential investors for the future investment.
Approximate Word count = 3275
Approximate Pages = 13.1
(250 words per page double spaced)
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