Question

how are financial reports useful in assessing the accountability of management

Answer 1

Financial reports are reports on the financial performance of a Company during a given period of time, presented by the management at the end of the reporting period.

Financial reports contain various elements such as :

1. Management discussion: This is a note by the CEO sharing with the users of financial reports, how the performance of the Company has been in the reporting period gone by. It also shares the objectives, plans of the management for the next reporting periods.

2. Auditor’s report: Auditor’s report is an important element of the financial reports which certifies that the financial information contained in the financial reports is true and fair to the best of his knowledge.

3. Accounting policies and assumptions used: Financial reports also contain a detailed account of various accounting policies and assumptions that have been applied in the preparation of financial statements contained therein. So, the users can assure themselves that proper accounting policies have been adhered to and that financial statements would be free from bias and window dressing.

4. Financial statements: These include income statement, balance sheet and statement of cash flows, prepared in accordance with accounting policies and procedures explained before.

Financial reports provide the information on how the business has been doing financially year-on-year and in comparison to its peers. This in turn is also a judgement of the performance of the Company management in steering forward its growth.