Assignment Financial Accounting and Reporting - Essay Example

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Assignment Financial Accounting and Reporting

The creditors assess the ability of a company to repay their loan. Hence, ratios pertaining to leverage and cash flows are essential for the company’s creditors and bondholders. Existing and potential Shareholders: Existing shareholders need the financial accounts to assess the long term viability of their investment whereas potential shareholders also require financial information to decide the future prospects of the company (Porter & Norton, 2012). This aids in deciding whether the investor should invest in the company or not. Shareholders generally look at the company’s ratios such as return on equity, dividend yield and price to earnings ratio to assess whether to invest or to not invest in company. Governmental Agencies: Tax collection agencies are interested in a company’s financial accounts to ascertain the tax that a corporation must pay to the government. Securities and Exchange Commission (SEC) prescribes the manner in which financial statements are presented and hence effectively is a user of company’s financial accounts (Sofat & Hiro, 2006). Stock brokers and financial analysts: Financial analysts use a company’s financial counts to prepare financial reports advising their clients to invest in a particular stock. ...Show more

Summary

1. Users of accounting information are categorized based on their relationship with the company. Financial accounts are prepared for the external users of a company. External users are not directly linked to the operations of a company and hence have reduced ability to obtain information…
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