Question

Accounting information is used by different category of users for making decision. Information without authenticity does not serve any purpose. There are different internal and external users, who make use of accounting information from various branches of accounting for making decision.

a) You are required to discuss about different material information which are NOT a part of balance sheet, income statement and cash flow. But a business should disclose to the users. (please here I WANT for every statements and Please here I would like to write each one separately)

b) Discuss the use of accounting information of different branches to different user. ( please here I WENT to discuss for each users )

Answer 1

a) Other materials information which are not disclosed in the financial statements or documents but should be disclosed to users are generally reffered as disclosures. They are of following types :

• Accounting changes - If any change is being made in the accounting policy of the company or any type of changes in GAAP being implemented differently or changes in evaluation of inventory process should be disclosed to that users may know the reason after change in the accou ting process.
• Accounting errors - The corrections being made in the financial statements have to be properly mentioned as discloses, though they have been corrected by the auditors. Errors can be by mistake or because of wrong intentions. Therefore they need to be written down as these errors may lead to bankruptcy.
• Asset retirement - Assets are retired when they loose their economic life. Then their Salvage value is being calculated and sales made from selling it is mentioned in the statements as the loss. But it also needs to be properly explained how thus loss has been incurred in disclosures for the sake of users.
• Insurance Contract Modification : As the balance sheet contains the economic value being added to their operations of the company, a disclosure is required for the explanation of the modification of the insurance contract otherwise it would be difficult to recognise it.
• Other items : These include the noteworthy events and also various related transactions. They have a great impact on the concerned financial period for which disclosures are being made.

b) use of accounting information to different users :

Internal users -

• Owners and stockholders - they use the accounting information for knowing whether the company is in profit or loss and can understand and take decisions on whether to hold the ownership or let it go by selling them. Which is of more profit.
• Directors and managers - They use the information to know the position of their company. If its not good, decision is being taken to bring improvements in the system. It helps in taking managerial decions.
• Employees - They use this information to predict the future of the organization. They decide whether working with the company would be profitable or not. Sometimes employees also suggest ways to iradicate problems when they know the financial position of the company
• Internal auditors - To check if the stepd taken for making of these statements are true and well verified as any misconception can lead to wrong decisions.

External users include -

• Creditors - They use the information to analyse the ability of the company to pay back the loans taken. If they are not so capable it's not profitable to provide them loan.
• Investors - Investors use the information to analyse if the company would return the investment made by then at good returns and to insure that their investments are secured, for which referring to financial statements are very important.
• Government - With the help of financial statements, they monitor the organisation with the current going economy and market rates.
• Trading partners - They have their stake in the company. If company would face loss, there is chance that traders have to face problems in getting there money from te company. Therefore for them to know that they are trading with efficient companies, they need the financial information.
• Regulatory agencies - They keep a check on whether the laws and policies formed are being regulated properly or not.

These were the list of users of financial informationa and why do they need them.