Financial reporting is the issuance of written documents in the form of the financial statements by the companies to the shareholders and other interested parties. 'The objective of these financial statements is to provide information about the reporting entity's financial performance and position that is useful to the wide range of users for assessing the stewardship of the entity's management and for making economic decisions.'To be 'useful,' this information must be 'represented faithfully, should be complete, prudent and free from material errors.' The purpose of imposing regulations on accounting practices and setting standards is to fulfil the objectives of financial statements.
Need for Standards and Legislation
It was difficult for investors and other stakeholders to make reasonable comparisons between two or like firms when no legislations were enforced or any standards set. To change this the companies act was introduced and enforced in 1989.
The accounting concepts are guidelines which ensure that a firm is able to report it's finances clearly and truthfully, giving an accurate account of the business at at a certain time.
The accounting standards that followed the guidelines of this law included the principle of prudence, consistency, accruals and matching, and going concern (approved code of accounting practice). These four concepts ensure that firms now have a foundation to improve their accounts reports. Different users use financial statements for differents things.. 'Financial statements should allow a user to make predictions of future cash flows, make comparison with other companies and evaluate the management's performance.' Firms should provide relevant and reliable information to it's investors if it wants to be able to analyse it's progress and analyse it relating to it's competitors. Comparisons on progress would be distorted and valueless if firms employ accounting policy at random. Financial information is imperative for the government to calculate...