Summary
Summary finance and accounting for decision makers
- Module
- Accounting And Finance
- Institution
- De Montfort University (DMU)
Summary of 4 pages for the course Accounting And Finance at DMU (this document)
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List and explain six stakeholders’ interests in financial statements1. Customers- to assess whether to continue purchasing from the business,
assessing its ability to continue in business and to meet customer needs.
2. Competitors- how best to compete with a business, or whether it is best
to leave the market on the grounds that it is not possible to compete
profitably with the entity. Evaluating competitor’s performance can also
help assessing own performance, analysing financial strengths and
identifying changes that might affect business future actions.
3. Employees- whether to continue working for an entity, identifying its
capacity to pay wages and if employees can demand higher monetary
rewards for their performance.
4. Government- identify if an entity is paying tax/should pay tax, how much
tax is actually paid and if this agrees with agreed pricing policies. By
assessing the business profits, sales revenues and financial strengths,
government can evaluate if financial support is needed to support
business activities.
5. Community representatives- assess whether to allow expansion of
premises/provide economic support, while assessing a business ability to
provide employment to the community, how community resources are
used, and the entity’s willingness to fund environmental improvements.
6. Suppliers- decide whether to continue supplying for the business with
goods and services, and if this can be done on credit, while assessing the
entity’s ability to meet its liabilities and pay for any goods or services
supplied.
List and explain what fundamentals characteristics are
Qualities that financial information should have in order to be useful; these
characteristics are divided into:
Fundamental qualitative characteristics:
-relevance: information should be capable of making a difference in the final
decision; to do this, it must predict future events or help confirm past events (or
do both). = materiality: information is considered material (=significant) if it can
affect decision.
-faithful representation: information provided should be complete (=contain all
information needed to understand what is being portrayed), neutral (=selected
without any bias), and free from error.
Enhancing qualitative characteristics:
Where accounting information is both relevant and faithfully represented, these
qualities can enhance its usefulness:
-comparability: information must be able to be compared (with previous years or
competitor’s data)
-verifiability: assure information is faithfully represented and can be verified by
evidence.
-timeliness: statements should be prepared in time for users; usually the later
accounting information is produced, the less useful it becomes.
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