Assessment 1: Individual Assignment

Question 1 a) Discuss the objectives of preparing financial statements. Financial statements are prepared to provide useful information on an enterprises financial conditions such as status of its assets, liabilities, financial performance, and cash flows to current and potential investors, creditors and other users to assist them in making favorable economic decisions. Users of financial statements are able to utilize the information to assess the investment amount, timing to commit the investment and the prospects of cash returns from investing in the enterprise. Financial statements also present information on the effects of transactions, events and conditions that have impacts on the economic resources of an enterprise.

b) Who are the users of accounting information in businesses? Describe 5 user group and what would they require. Management The management in a company utilizes information provided by management accounting to facilitate analysis of the financial performance and position of the company (Gary A.Porter). The detailed information such as budgets, costs and revenues, together with assessment of the past performances and results of the company, allow the management to implement improved measures for effective planning and control, and define the strategic target achievements of the organization (http://accounting-simplified.com/financial/types-of-accounting.html). Creditors/Banks When a company approaches a bank or a credit company to take up a loan for its business, the lender will require the financial information of the company to determine its credit worthiness and assess the ability of the company to repay the principal amount with the incurred interest (Gary A.Porter). Terms of the loan such as loan amount and repayment period are then determined by the creditors based on the assessment of the companys health through its financial statement. (http://accounting-simplified.com/financial/typesof-accounting.html).

Investors Financial Accounting Information such as the companys financial statements is important to current and potential investors. Investors rely on financial information to analyze the prospects of a company and consider other competing investments before making their investment choices. Information available on the financial statements, such as the company outlook, profits and past performance will determine the investment decisions as most investors would look forward to generate a substantial return from their investment in the company.

Tax Authorities Tax accounting information is required by the tax authorities to facilitate taxation and regulatory purposes. Every year, companies submit tax returns to the tax authority to report on their incomes and earnings for taxation. The tax returns are assessed and computed to determine the amount of tax that the company is liable to pay for (http://www.accountingverse.com/accounting-basics/users-offinancial-statements.html). The information on the tax returns will also be assessed to determine if there are any false declarations on the income received by the company so that appropriate legal actions will be undertaken for taxation regulatory purposes.

Employees The financial performance and position of a company determines its profitability and stability. Employees are constantly seeking information on the companys financial statement to assess the financial ability of the company to sustain the payment of salaries and benefits to the employees. This group of users is also concerned on any negative results in the financial statements as that will have impacts on their future remuneration and career stability (http://www.accountingverse.com/accounting-basics/users-of-financialstatements.html).

References

http://accounting-simplified.com/financial/types-of-accounting.html http://www.iasplus.com/en/standards/ias/ias1 http://highered.mcgrawhill.com/sites/0072994029/student_view0/ebook/chapter1/chbody1/objectives_of _financial_reporting.html#graphic1-6 Porter, G. A., Norton, C. L., & Porter, G. A. (2008). Chapter 1 Accounting as a Form of Communication. In Using financial accounting information: The alternative to debits and credits (pp. 11-12). Mason, OH: Thomson/SouthWestern. http://www.accountingverse.com/accounting-basics/users-of-financialstatements.html