ACCA FA Syllabus A. The Context And Purpose Of Financial Reporting - The users of financial statements - Notes ^{1 / 1}

Why do businesses need to prepare and produce financial information?

A business should produce information about its activities because there are various groups of people who want or need to know that information.

The “Framework for the Preparation and Presentation of Financial Statements” states that, “the objective of financial statements is to provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions.”

Users Include:

1. Managers - to enable them to manage the business efficiently and to make effective decisions.

2. Shareholders (owners, investors) - to assess how profitable the company is

3. Suppliers (on credit) and customers

   Suppliers want to know about the company/s ability to pay its debts; 
   Customers need to know it can always supply and not close down.

4. Providers of finance (banks etc) - to see if company can keep up interest payments, and repay the debt

5. Tax authorities - want to know profits to assess the tax payable

6. Employees- their future careers and the size of their wages and salaries depend on the company doing well

7. Financial analysts /advisors

   - are usually interested in the financial statements of public companies NOT of a sole trader

8. Governments - to provide a basis for national statistics.