In: Accounting
what do you understand about the industrial revolution and corporate organization?
Differentiate an owner from board of directors and why are owners considered external users of financial information while board of directors internal users?
Solution. Industrial Revolution initiated the manufacturing business and brought corporate organization which set up work planned, monitored and controlled by the management to deliver goods and services in large scale. Setting corporate organizations facilitates globalization leading competitive market environment requiring organizations to prepare financial statements along with social accounting to sustain in today's times.
An owner of an organization represent limited company shareholder whereas, board of directors are elected to look after the growth and management of an organization. Owners are generally considered external stakeholders of an organization as they are not much involved in the internal activities of an organization and focuses only on the profits or revenues earned or losses incurred at the end of an accounting period and takes decision on board of director and management election or removal along with investment decisions to continue business growth based on financial information. Whereas, board of directors are internal users of an organization's financial information as such facilitates in planning and controlling process to meet objectives effectively and efficiently during an accounting period.