Financial reporting is one of the most important needs of a company. Apart from being an integral legal requirement, it also presents a clear picture of the performance of a company.
The performance and competence of the management can also be judged to a great degree. Financial reporting that is done according to the standards defined by the IASB ensures that a very helpful analysis is available to compare a company’s performance with its own history and with the other companies. This helps a myriad of users in making crucial economic decisions. Financial statements are needed to be prepared by keeping in view that the needs of the users of financial statements are fulfilled. They must contain all the information that is necessary for the general users’ financial information. However, some users require non-financial information about an entity which cannot be found in financial statements. The word ‘user’ mostly involves the current and prospective investors whose decisions are greatly influenced by financial statements.
Financial statements show the ability of an entity to generate cash and cash equivalents in a timely manner. This helps in the determination of the fact whether an entity can pay its employees, other obligations and can settle its liabilities in time and still generate good profits. The information about the changes in the financial position of an entity helps in the evaluation of an entity’s performance over time and the current trend i.e. whether the profits are increasing or decreasing with the passage of time. ...