Published Financial Statements: Users and Their Need for Accounting Information
C H A P T E R O N E
INTRODUCTION
1.1 BACKGROUND OF THE STUDY Accounting as a profession or discipline, has always been seen as an information-generating one, which fittingly makes the job of the Accountant to be that of observing economic activities, recording the observations in the prescribed books, analysing the recordings, interpreting his analysis and preparing reports to all users of Accounting Information. The prepared reports are generally referred to as financial statements, which clearly outline or identify the areas of strengths and weaknesses of a business organisation. Various interest groups use the generated Accounting Information in the financial statements as input or guide towards the making of effective decisions on financial matters.
Put somewhat more pointedly, “Accounting is the process of identifying, measuring and communicating of economic information to permit informed judgement and decisions by users of the information” (American Accounting Association, 1966). The above definition of Accounting clearly shows the purpose or usefulness of Accounting Information to the various stakeholders - i.e. to enable them (users) of the information to make sound and objective decisions relating to them.
These users or interest groups are broadly classified into two categories, viz: internal and external interest groups. The internal interest group includes: management, employees and shareholders. While external interest group on the other hand includes: Government Agencies/Parastatals, trade creditors and suppliers, trade union, the general public as well as financial institutions (bankers). Management for instance, uses Accounting Information as a tool for effective decision-making, which borders on planning, organising, controlling and evaluation of overall performance of the organisation over a specific period. It could be said therefore that management and accurate, timely and Accounting Information go a long way to determine the
INTRODUCTION
1.1 BACKGROUND OF THE STUDY Accounting as a profession or discipline, has always been seen as an information-generating one, which fittingly makes the job of the Accountant to be that of observing economic activities, recording the observations in the prescribed books, analysing the recordings, interpreting his analysis and preparing reports to all users of Accounting Information. The prepared reports are generally referred to as financial statements, which clearly outline or identify the areas of strengths and weaknesses of a business organisation. Various interest groups use the generated Accounting Information in the financial statements as input or guide towards the making of effective decisions on financial matters.
Put somewhat more pointedly, “Accounting is the process of identifying, measuring and communicating of economic information to permit informed judgement and decisions by users of the information” (American Accounting Association, 1966). The above definition of Accounting clearly shows the purpose or usefulness of Accounting Information to the various stakeholders - i.e. to enable them (users) of the information to make sound and objective decisions relating to them.
These users or interest groups are broadly classified into two categories, viz: internal and external interest groups. The internal interest group includes: management, employees and shareholders. While external interest group on the other hand includes: Government Agencies/Parastatals, trade creditors and suppliers, trade union, the general public as well as financial institutions (bankers). Management for instance, uses Accounting Information as a tool for effective decision-making, which borders on planning, organising, controlling and evaluation of overall performance of the organisation over a specific period. It could be said therefore that management and accurate, timely and Accounting Information go a long way to determine the