Question

• Discuss the importance of providing accurate financial information. What is the impact of inaccurate information? Who is looking at this information and why?
• How do the challenges of providing accurate financial information impact the health care business that you have chosen to create in this course?
• What legal ramifications could result from disseminating inaccurate information?

Answer 1

Financial information is the information related to business financials. Example- What are the company assets, liabilities, profit for the year, earning per share etc. A business provides the financial information through the annual reports of the company which are published annually for the stock market listed companies.

The users of financial information can be the investors, lendors (who give the loan to the company like banks), government and government agencies (for tax purposes), rating agencies (like Moody's, fitch ratings) etc.

Investors look at the financial information to judge the company financial position (Balance sheet)  and financial performance (Profit and loss statement). They need to forecast whether the company is sustainable in the long run or not and whether the company can provide them good return on their investments. By looking at the fair presented financial numbers and calculating various financial ratios, they make economic decisions whether to invest in the company or not.

If the company do not provide accurate information, then the investors and other parties will not be able to make good quality economic decision and maybe they will lose their hard earned money due to company's bad practices of not presenting the fair financial numbers. In the long run, investors will lose faith in the capital markets and they will not invest their money which ultimately stops the innovation because the companies will not be able to raise money from the market and ultimately, the whole economy growth slows down due to company's ill practices of providing inaccurate information.

The lenders will also not provide the loan to the company when they find out the ill practices of the company. So, in the long run, integrity of capital markets, people trust in the financial markets all will end.