Question

1. Give an example for each of the five uses of financial information.

• Financial Condition:
• Stewardship:
• Efficiency:
• Effectiveness:
• Compliance:

Answer 1

Financial Condition

It helps the user to understand the asset, liabilities and equity of company.It helps the user to understand how much liabilities company have and whether the company is in position to settle its liabilities with the help of cash flows that its been generating.

Stewardship

Stewardship refers to the responsibility that companies have to understand and manage their impacts on the environment. Information about this helps the users to get an idea about the impact of company's activity on the environment and how the company is trying to reduce the negative impact. Companies which takes into account Corporate Social Responsibility into its vision and mission are most preferred company.

Efficiency

Efficiency refers to using the available resources in best possible manner. Efficient Companies maximise their output from given input and minimize their cost. With the help of this financial information users can know how efficiently a particular company is working? How long it takes for a product to reach to the market? Input Output Ratio will be useful in this.

Effectiveness

Effectiveness refers to quality of any service/product delivered by a company.It is mainly related with number of sales return by the company and defective product produced by the company.It helps users to understand how effectively and consistently employees, workers,managers and machines are working.

Compliance

To exist in the society company needs to comply with various rules and regulations.Compliance information helps users to know whether the company is complying with all the rules and laws applicable to it or not.It creates the sense of responsible entity in the eyes of users of financial information. Further, timely compliance prevents thr company from paying unnecessary penalties.