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Financial Reporting - Essay Example
Accounting is major means of helping mangers to administer each of the activity or functional areas for which they are responsible and to coordinate those activities or functions within the framework of the organization as a whole. (Horngren, Foster and Datar 2000)
Each major purpose of accounting often requires a different way of presenting or reporting the information in the accounting system. In this scenario, it may be emphasized that it is a vicious circle in that there are managers in organizations who affect accounting and such accounting in turn affects people's behaviour. The impact of accounting reports on the decision making behaviour of business, government and creditors is termed as the 'economic consequences' and the world has seen the worst of such consequences because of the bad reporting as in the case of 'Enron Corporation'. It may also be observed that such external reporting had given rise to the preparation and presentation of consolidated financial and non-financial statements. Several arguments have been flowing around about the very purpose behind the merits and demerits of such consolidated statements. In this context, this paper attempts to draw an overall picture of the position of the consolidated statements in relation to decision making by the stakeholders vis--vis the presence of the consolidated statements as a deterrent factor to have a clear understanding of the decision making process.
"Management wealth, it is argued, is a function of changes in share prices (via stocks and stock options), and changes in cash bonuses (via compensation plans). ...