CHAPTER 1

THE NEED FOR FINANCIAL

REPORTING
 Information
• The use of information significantly helps
business enterprise to survive and compete.
• Information has to be acquired, processed,
analyzed and communicated for formulation
of better decision.
 Users
Internal Users (active owners and managers)
-Users who have ready access to specific types of
accounting information.
-Use financial information for internal decision
making purposes.

*note: Financial reporting focuses not on the needs of the

internal users but on the information needs of those who do
not have ready access to readily available information about
an entity.*
External Users
- Inactive owners (financial condition and
financial performance to make decisions)
- Present and Potential Creditors (ability to pay
its loans)
- Suppliers (goods and service will be paid when
due)
- Employees (ability to provide benefits)
- Customers (continuance of enterprise)
- Government (comply with prescribed rules and
regulations)
Direct Users
- Use financial information as a tool to protect
their own interest in the enterprise.

Indirect Users
- To protect the interest of the investors,
employees and the public.
Indirect Users

External User
Direct Users

Internal Users
 BRANCHES OF ACCOUNTING
FINANCIAL ACCOUNTING
- Broadest branch of accounting.
- Concerned with the recognition,
measurement, and communication of economic
resources, economic obligations and changes in
economic resources.
MANAGEMENT ACCOUNTING
- To make and implement short-term and long-
range plans for the enterprise.
- Making routine and major economic decisions.
- Information provide is not structured and is not
necessarily conforming to the accounting
standards.
COST ACCOUNTING
- Concerned with the measurement and
recognition of cost of services provided or
products manufactured.
- It is more ordinarily associated with
manufacturing companies as tool of both
financial accounting and management
accounting.
TAX ACCOUNTING
- Concerned with the computation of taxes and
preparation of tax returns submitted to a taxing
authority.

GOVERNMENT ACCOUNTING
- Encompasses the process of analyzing, classifying,
summarizing and communicating all transactions
involving the receipts and disposition of
government funds and property and interpreting
the results thereof.
FINANCIAL REPORTING AND THE STANDARD-
SETTING PROCESS
- The evolution of multinational companies led
to the conduct of international business
operations across national borders. Business
transaction became complicated, and goods,
services and capital investments were
transferred worldwide. (There was a need)