Accounting information plays an important role in the wellbeing and management of organizations. Financial statements are vital to understanding and keeping in touch with the “health” of a company and have the ability to shine a light on new emergent trends. The importance of financial statements for every stakeholder in an organization, however, can be debated.
Why Users Are Interested
Accounting information expresses the state of an organization within a timeframe. One of the primary purposes of the financial statement is to report on the financial state of an organization over a period of time (FreshBooks, 2019). Usually attempted once per year, accounting information of this kind displays any progress the company has made during that time, including expenses and profits. Stakeholders working with an organization are likely to find this information useful, as it gives them the capacity to monitor the company’s condition.
Accounting information is useful in planning and forecasting. Accounting information is vital in planning and prediction-making. Giving people information about a company’s status also gives them the capacity to be more informed. It becomes possible to make educated guesses on the future growth or development of a company. This process helps managers and leaders to plan ahead, shareholders manage their investments, and employees consider their employment status.
Accounting information access empowers stakeholders. By giving stakeholders access to accounting information, organizations support their decision-making and relay a certain degree of trust. It is a gesture of mutual benefit and a way to give stakeholders the necessary information to support their companies. The existence of financial statements helps establish a mutually beneficial relationship between organizations and their supporters. For employees, access to financial information can be a signifier of trust or a source of confidence (Adams, 2021). It is important for organizations to share their financial data in order to facilitate collaboration within their circle.
Accounting information as an indicator of stakeholder investment and effort. Accounting information can provide an incentive for investment to any stakeholder (Amahalu, 2020). For shareholders, this comes in the form of literal investments and financial support. For employees or managers, this can mean the degree of effort that will be exerted into working within an organization.
Accounting information identifies potential liabilities. One of the important benefits of using financial information is its ability to highlight flaws within a company (Ross, 2020). Potential debts, an inability to break even, or cases of incorrect reporting can all be noted through financial statements. Getting access to this information is necessary for all stakeholders.
Accounting information for tracking vital metrics. One of the important features of financial statements is their regular nature. By considering previous financial statements and comparing them to more recent ones, stakeholders can determine how their company fares along with key performance indicators, such as sustainability, profitability, equity, and others (Kenton, 2021). As a result, financial statements become the primary tools for maintaining control over an organization’s growth direction.
Why Users Are Uninterested
Ignores the nuance of seasonal changes or rapid developments throughout the year. The fact that most financial statements are only compiled once a year often makes them too unreliable as performance indicators in short-term considerations (Sherman and Young, 2016). For managers and other specialists, evaluating the performance of their company is a professional necessity, warranting the use of other performance indicators instead. Furthermore, the infrequency of financial statements is capable of giving shareholders the wrong impression about the season-by-season success of a company.
Generally, not useful to a regular employee or their work cycle. Regular employees of an organization, while they are considered stakeholders, often do not have the power or influence necessary to make use of financial statement information. Furthermore, it is often necessary to specifically educate them on understanding financial data, which takes resources from a company (Cote, 2020). Their influence on the direction of a company’s development is limited, as well as their ability to manage stock. As a result, financial statements are likely not to be of use for most workers.
Can differ from actual performance values or be incorrect. Financial statements are usually utilized by company managers in order to pave the correct way forward (Sherman, 2014). Because of fraud or an increased incentive to embellish financial statements on the part of leadership, however, the accounts can often be unreliable in displaying the performance of the organization (Nasir, Ali and Ahmed, 2019). In specific corporate settings, it can be impossible to eliminate the incentive for financial statement manipulation, hindering its usefulness as a screening too (Omar, Johari and Hasnan, 2015). In this case, they will be of no value to both shareholders and management itself, as no reliable business decisions can be made using their data.
It can be hard to understand for some stakeholders. For employees and some shareholders, accounting data can be difficult to understand. In order to derive the full value from a financial statement, it is necessary to understand it in full, including the potential implications of the data one sees. Research shows that education level and knowledge play a central role in the use of financial statements (Drake, Quinn and Thornock, 2017). Hard to understand financial statements, similarly, are a source of uncertainty (Salehi et al., 2020). If a person is incapable of analyzing financial statements critically, they will be of no use to them.
User Groups and Their Needs
For this consideration, the stakeholders of the Apple Company will be discussed.
Investors
Potential investors in the Apple company, owing to their name, will be interested in the success of their investment. In order to ensure that their purchasing of Apple stock brings them benefits, they will examine a company’s performance over the years, levels of debt accumulated, and future estimates of success (Kaplan Financial, n.d.). Therefore, financial data is crucial in financial investment in Apple.
Employees
For employees, the success of a company, coupled with its employee salary expenditure, will be the main priority. In order to determine if the employees want to continue working with Apple or need to unionize, they will examine financial statements.
Lenders
Lenders to the Apple company will focus on the security of their money and the ability of the company to repay debt. In order to determine this, lenders may look at the value of assets Apple has as security and the income levels of the organization at present. Lenders largely use financial data and other accessible information to provide funding to companies (CFO Selections Team, 2020). Therefore, Apple must ensure the availability of well-presented data to get the necessary monetary support.
Government
Government can access financial statements to check an organization’s efforts in paying taxes. The tax payable mentioned in the financial statement will give the government the necessary security over its market.
Suppliers
Suppliers will check the wellbeing of a company by accessing its profits, expenses, and debts over the year, and years prior. Financial transparency helps the process of business negotiation and assists in establishing fruitful bonds between organizations (Jackson, 2019). Suppliers access their partner’s financial data in order to determine the state of their business cooperation.
Customers
Apple’s customers may want to examine the company’s financial statements to see whether the company is operating normally, determining its ability to supply new products on the market. It is also possible for consumers to review companies’ changes over the years and expect shifts in product pricing.
Reference List
Adams, S. (2021). The Importance of Sharing Financial Information. [online] www.teleioscn.org. Web.
Amahalu, N. (2020). Effect of Financial Statement Quality on Investment Decisions of Quoted Deposit Money Banks in Nigeria. [online] papers.ssrn.com. Web.
CFO Selections Team. (2020). Which Financial Statements are Required to Get Funding? [online] Web.
Cote, C. (2020). How & Why Managers Use Financial Statements | HBS Online. [online] Business Insights – Blog. Web.
Drake, M.S., Quinn, P.J. and Thornock, J.R. (2017). Who Uses Financial Statements? A Demographic Analysis of Financial Statement Downloads from EDGAR. Accounting Horizons, 31(3), pp.55–68.
FreshBooks (2019). Why are Financial Statements Important? [online] FreshBooks. Web.
Jackson, A. (2019). How analysis of supplier financial statements supports negotiation | ADR International. [online] CFO Selections. Web.
Kaplan Financial. (n.d.). Users of the Financial Statements. [online] Web.
Kenton, W. (2021). Financial Performance. [online] Investopedia. Web.
Nasir, N.A.B.M., Ali, M.J. and Ahmed, K. (2019). Corporate governance, board ethnicity and financial statement fraud: evidence from Malaysia. Accounting Research Journal, 32(3), pp.514–531.
Omar, N., Johari, Z.A. and Hasnan, S. (2015). Corporate Culture and the Occurrence of Financial Statement Fraud: A Review of Literature. Procedia Economics and Finance, 31, pp.367–372.
Ross, S. (2020). The Main Focus Points When Analyzing a Balance Sheet. [online] Investopedia. Web.
Salehi, M., Lari Dasht Bayaz, M., Mohammadi, S., Adibian, M.S. and Fahimifard, S.H. (2020). Auditors’ response to readability of financial statement notes. Asian Review of Accounting, 28(3), pp.463–480.
Sherman, F. (2014). What Are the Dangers of Inaccurate Financial Reporting? [online] Chron.com. Web.
Sherman, H.D. and Young, S.D. (2016). Where Financial Reporting Still Falls Short. [online] Harvard Business Review. Web.