Question

Write an essay on the following:

Financial reports are largely based on historical financial information and are therefore useful in assessing the accountability (stewardship) of management, but of little use to external decision-makers when it comes to allocating scarce resources.  (750 words)

Answer 1

Financial statements provide information about financial position of an organization. This information is used by the readers of financial statements to make decisions for the allocation of resources.

No Doubt, Financial reports are largely based on historical financial information and are therefore useful in assessing the accountability (stewardship) of management, Bit it is wrong to say that it can not use for external decision-makers when it comes to allocating scarce resources.

objective of financial statements is to Provide primarily those users who have limited authority, ability, or resources to obtain information and who rely on financial statements as their principal source of information about an enterprise’s economic activities

This all we studyied about financial statement now let us know these are also helpful for external Decision makers in making decision in case of Scarce of resources.  

The company financial reporting is intended to provide external users information that is useful in making business and economic decisions, that is, for making reasoned choices among alternative uses of scarce resources in the conduct of business and economic activities. Thus, users are potentially interested in the information provided by financial reporting.

users of financial statement various users are owners, lenders, suppliers, potential investors and creditors, employees, management, directors, customers, financial analysts labour unions, trade associations, business researchers, teachers and students, and the public.

E.g. The availability of capital is one of the scarce and major productive factors needed to pursue economic activity and to achieve the goal of efficient allocation of resources, abd one can take Decision about it only after going through financial statements of the organisation .

Thus it is wrong to say Financial statements are less useful xternal decision-makers when it comes to allocating scarce resources