Studies Note: Accounting

International Accounting Standards Committee (IASC)

<div class="MsoNormal">International Accounting Standards Committee (IASC)<o:p></o:p></div><div class="MsoNormal">Formation of the International Accounting Standards Committee<o:p></o:p></div><div class="MsoNormal">The International Accounting Standards Committee (IASC) was formed in 1973 through an agreement made by professional accountancy bodies from Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the United Kingdom and Ireland, and the United States of America. Additional sponsoring members were added in subsequent years, and in 1982 the sponsoring "members" of the IASC comprised all of the professional accountancy bodies that were members of the International Federation of Accountants (IFAC).<o:p></o:p></div><div class="MsoNormal">From its formation in 1973 until a comprehensive reorganization in 2000, the structure for setting International Accounting Standards was known as the International Accounting Standards Committee (IASC).<o:p></o:p></div><div class="MsoNormal">The International Accounting Standards Committee was essentially the structure, rather than a committee in the traditional sense of a group of people. There was no actual "committee" of that name.<o:p></o:p></div><div class="MsoNormal">Elements of the old IASC structure<o:p></o:p></div><div class="MsoNormal">Major components of the old IASC structure were:<o:p></o:p></div><div class="MsoListParagraphCxSpFirst" style="line-height: 18px; margin: 0in 0in 10pt 0.5in;">·         IASC Board –<o:p></o:p></div><div class="MsoListParagraphCxSpMiddle" style="line-height: 18px; margin: 0in 0in 10pt 0.5in;">·         Consultative Group – an advisory body representing a wide range of international organizations with an interest in accounting<o:p></o:p></div><div class="MsoListParagraphCxSpMiddle" style="line-height: 18px; margin: 0in 0in 10pt 0.5in;">·         Standing Interpretations Committee (SIC) – developed and invited public comment on interpretations of IASC Standards, subject to final approval by the IASC Board<o:p></o:p></div><div class="MsoListParagraphCxSpMiddle" style="line-height: 18px; margin: 0in 0in 10pt 0.5in;">·         Advisory Council – oversight body (despite its name, the Advisory Council functioned more like the Board of Trustees of the current IFRS Foundation)<o:p></o:p></div><div class="MsoListParagraphCxSpLast" style="line-height: 18px; margin: 0in 0in 10pt 0.5in;">·         Steering Committees – expert task forces for individual agenda projects.<o:p></o:p></div><div class="MsoNormal"> </div><div class="MsoNormal">IASC Board<o:p></o:p></div><div class="MsoNormal">The standard-setting board of the IASC was known as the IASC Board. The IASC Board had 13 country members and up to 3 additional organizational members who operated on a part-time, volunteer basis. Each member was generally represented by two "representatives" and one "technical advisor". The individuals came from a wide range of backgrounds – accounting practice, business (particularly multinational businesses), financial analysis, accounting education, and national accounting standard-setting. The Board also had a number of observer members (including representatives of IOSCO, FASB, and the European Commission) who participated in the debate but did not vote.<o:p></o:p></div><div class="MsoNormal">The IASC Board promulgated a substantial body of Standards, Interpretations, a Conceptual Framework, and other guidance that was adopted directly by many companies and that was looked to by many national accounting standard-setters in developing national accounting standards.<o:p></o:p></div><div class="MsoNormal">List of I.A.S Issued: <o:p></o:p></div><div class="MsoNormal">The international accounting standards committee has so far issued the following standards.<o:p></o:p></div><div class="MsoNormal">IAS 1: Presentation of Financial Statements. IAS 2: Inventories IAS 3: Consolidated Financial Statements Originally issued 1976, effective 1 Jan 1977. Superseded in          1989 by IAS 27 and IAS 28  IAS 4: Depreciation Accounting Withdrawn in 1999, replaced by IAS 16, 22, and 38, all of which were   issued or revised in 1998 IAS 5: Information to Be Disclosed in Financial Statements Originally issued October 1976, effective 1 January 1997. Superseded by IAS 1 in 1997 IAS 6: Accounting Responses to Changing Prices Superseded by IAS 15, which was withdrawn December 2003 IAS 7: Cash Flow Statements IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors IAS 9: Accounting for Research and Development Activities – Superseded by IAS 38 effective 1.7.99 IAS 10: Events After the Balance Sheet Date IAS 11: Long-Term Construction Contracts [Cf. Construction in progress for the customer standpoint] IAS 12: Income Taxes IAS 13: Presentation of Current Assets and Current Liabilities – Superseded by IAS 1. IAS 14: Segment Reporting (superseded by IFRS 8 on 1 January 2008) IAS 15: Information Reflecting the Effects of Changing Prices – Withdrawn December 2003 IAS 16: Property, Plant and Equipment IAS 17: Leases IAS 18: Revenue IAS 19: Employee Benefits IAS 20: Accounting for Government Grants and Disclosure of Government Assistance IAS 21: The Effects of Changes in Foreign Exchange Rates IAS 22: Business Combinations – Superseded by IFRS 3 effective 31 March 2004 IAS 23: Borrowing Costs IAS 24: Related Party Disclosures IAS 25: Accounting for Investments – Superseded by IAS 39 and IAS 40 effective 2001 IAS 26: Accounting and Reporting by Retirement Benefit Plans IAS 27: Consolidated Financial Statements IAS 28: Investments in Associates IAS 29: Financial Reporting in Hyperinflationary Economies IAS 30: Disclosures in the Financial Statements of Banks and Similar Financial Institutions – Superseded by IFRS 7 effective 2007 IAS 31: Interests in Joint Ventures IAS 32: Financial Instruments: Presentation (Financial instruments disclosures are in IFRS 7 Financial Instruments: Disclosures, and no longer in IAS 32) IAS 33: Earnings Per Share IAS 34: Interim Financial Reporting IAS 35: Discontinuing Operations – Superseded by IFRS 5 effective 2005 IAS 36: Impairment of Assets IAS 37: Provisions, Contingent Liabilities and Contingent Assets IAS 38: Intangible Assets IAS 39: Financial Instruments: Recognition and Measurement IAS 40: Investment Property IAS 41: Agriculture<o:p></o:p> <div> </div></div><div class="MsoNormal"></div>

International Accounting Standards Committee (IASC)

International Accounting Standards Committee (IASC) Formation of the International Accounting Standards Committee The International Accounti...

Question 2: Explain the accounting principle, accounting convention and accounting standards(IAS)?

<div class="MsoListParagraphCxSpLast" style="line-height: 18px; margin: 0in 0in 10pt 0.25in;">Ø  Question 2: Explain the accounting principle, accounting convention and accounting standards(IAS)?<o:p></o:p></div><h1>Accounting Concepts<o:p></o:p></h1>Learning objectives:<o:p></o:p> Explain important accounting principles.<o:p></o:p> The term concepts includes those basic assumptions or conditions upon which accounting is based. The following are the important accounting concepts:<o:p></o:p> <div style="margin-left: 0.5in; text-indent: -0.25in;">·         Business Entity Concept<o:p></o:p></div><div style="margin-left: 0.5in; text-indent: -0.25in;">·         Going Concern Concept<o:p></o:p></div><div style="margin-left: 0.5in; text-indent: -0.25in;">·         Money Measurement Concept<o:p></o:p></div><div style="margin-left: 0.5in; text-indent: -0.25in;">·         Cost Concept<o:p></o:p></div><div style="margin-left: 0.5in; text-indent: -0.25in;">·         Duel Aspect Concept<o:p></o:p></div><div style="margin-left: 0.5in; text-indent: -0.25in;">·         Accounting Period Concept<o:p></o:p></div><div style="margin-left: 0.5in; text-indent: -0.25in;">·         Matching Concept<o:p></o:p></div><div style="margin-left: 0.5in; text-indent: -0.25in;">·         Realizations / Realization Concepts<o:p></o:p></div>The explanations of these concepts are as follows:<o:p></o:p> <h2 align="left">Business Entity Concept:<o:p></o:p></h2>In accounting, business is treated as separate entity from its owners. Accounts are prepared to give information about the business and not about those who own it. A distinction is made between business transactions and personal transactions. Without such a distinction, the affairs of the business will be mixed up with the private affairs of the proprietor and the true picture of the firm will not be available. The 'Business' and 'owner' are taken as two separate entities. The accountant is interested to record transactions relating to business only. The private transactions of the owner will be recorded separately and will have no bearing on the business transactions. All the transactions of the business are recorded in the books of the business from the point of view of the business as an entity and even the proprietor is treated as a creditor to the extent of his capital.<o:p></o:p> The concept of separate entity is applicable to all of business organizations. For example, in case of a sole proprietorship business or partnership business, though the sole proprietor or partners are not considered as separate entities in the eyes of law, but for accounting purposes they will be considered as separate entities. In the case of joint stock Company, the business has as separate legal entity than the shareholders. The coming and going shareholders don not affect the entity of the business. Thus, the distinction between owner and the business unit has helped accounting in reporting profitability more objectively and fairly. It has also led to the development of 'responsibility accounting' which enables us to find out the profitability of even the different sub-units of the main business.<o:p></o:p> <h2 align="left">Going Concern Concept:<o:p></o:p></h2>According to going concern concept it is assumed that the business will exist for a long time to come. Transactions are recorded in the books keeping in view the going concern aspect of the business unit. A firm is said to be going concern when there is neither the intention nor necessary to wind up its affairs. In other words, it should continue to operate at its present scale in the future. On account of this concept the fixed assets are shown in the balance sheet at a diminishing balance method i.e., going concern value. There is no need to show assets at market value because these have been purchased for use in future and earn revenues and for sale purpose. If the business is not to continue then market value will have significance. Since business is to continue, fixed assets will be shown at cost less depreciation basis. It is due to the concept that the fixed assets are depreciated on the basis of their expected life than on the basis of market value. The concept also necessitates distinction between expenditure that will render benefit over a long period and that whose benefit will be exhausted quickly, say within one year. The going concern concept also implies that existing liabilities will be paid at maturity.<o:p></o:p> <h2 align="left">Money Measurement Concept:<o:p></o:p></h2>Accounting to records only those transactions which can be expressed in terms of money. Transactions or events which cannot be expressed in money do not find place in the books of accounts though they may be very useful for the business. For example, if a business has got a team of dedicated and trusted employees, it is definitely an asset to the business, but since their monetary measurement is not possible, they are not shown in the books of business. It should be remembered that money enables various things of diverse nature to be added up together and dealt with. The use of a building and the use of clerical service can be aggregated only through money values and not otherwise.<o:p></o:p> <h2 align="left">Cost Concept:<o:p></o:p></h2>This concept is closely related to the going concern concept. According to this concept, an asset in ordinarily recorded in the books at the price at which it was acquired i.e., at its cost price. This cost serves the basis for the accounting of this asset during the subsequent period. The 'cost' should not be confused with 'value'. It must be remembered that as the real worth of the assets changes from time to time, it does not mean that the value of such an asset is wrongly recorded in the books. The book values of the assets as recorded do not reflect their real value. They do not signify that values noted therein are the values for which they can be sold. Though the assets are recorded in the books at cost, in course of time, they are reduced in value on account of depreciation charges. The idea that the transactions should be recorded at cost rather than at as subjective or arbitrary value is known as cost concept. With the passage of time, the market value of fixed assets like land and buildings vary greatly from their cost. These changes in the value are generally ignored by the accountants and they continue to value them in the balance sheet at historical cost. The principle of valuing the fixed assets at cost and not at market value is the underlying principle in cost concept. According to them the current values alone will fairly represent the cost to the entity. The cost principle is based on the principle of objectivity. There is no room for personal assessment in showing the figures in accounting records. If subjectivity is flowed in records the same assets will be valued at different figures by different individual. Everybody will have his own views about various assets. The cost concept is helpful in making truthful records. The records become more reliable and comparable. <a name='more'></a><o:p></o:p> <h2 align="left">Dual Aspect Concept:<o:p></o:p></h2>This is the basic concept of accounting. Modern accounting system is based on dual aspect concept. Dual concept may be stated as "for every debit, there is a credit". Every transaction should have two sided effect to the extent of same amount. For example, if A starts a business with a capital of $10,000. There are two aspects of the transaction. On the one hand the business has assets of $10,000 while on the other hand the business has to pay to the proprietor a sum of $10,000 which is taken as proprietor's capital. This expression can be shown in the form of following equation:  <o:p></o:p> <table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; width: 100%px;"><tbody><tr><td style="padding: 0in; width: 268px;" width="41%"><div class="MsoNormal">Capital (Equities)<o:p></o:p></div></td><td style="padding: 0in; width: 59px;" width="9%"><div class="MsoNormal">=<o:p></o:p></div></td><td style="padding: 0in; width: 326px;" width="50%"><div class="MsoNormal">Costs (Assets)<o:p></o:p></div></td></tr><tr><td style="padding: 0in; width: 268px;" width="41%"><div class="MsoNormal">10,000<o:p></o:p></div></td><td style="padding: 0in; width: 59px;" width="9%"><div class="MsoNormal">=<o:p></o:p></div></td><td style="padding: 0in; width: 326px;" width="50%"><div class="MsoNormal">10,000<o:p></o:p></div></td></tr></tbody></table>The term 'assets' denotes the resources owned by a business while the term 'equities' denotes the claims of various parties against the assets. Equities are of two types. They are owner’s equity and outsider’s equity. Owner's equity (or capital) is the claim of the owner's against the assets of the business while outsider’s equity (liabilities) is the claim of outside parties against the assets of the business. Since all assets of the business are claimed by someone (either owners or outsiders), the total of assets will be equal to total of liabilities.<o:p></o:p>  Thus:  <o:p></o:p> <table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; width: 551px;"><tbody><tr><td style="padding: 0in; width: 166.5pt;" width="222"><div class="MsoNormal"> </div></td><td style="padding: 0in; width: 138pt;" width="184"><div class="MsoNormal">Equities<o:p></o:p></div></td><td style="padding: 0in; width: 0.75in;" width="72"><div class="MsoNormal">=<o:p></o:p></div></td><td style="padding: 0in; width: 177.75pt;" width="237"><div class="MsoNormal">Assets<o:p></o:p></div></td><td style="padding: 0in; width: 112.5pt;" width="150"><div class="MsoNormal"> </div></td><td style="padding: 0in; width: 3.5in;" width="336"><div class="MsoNormal"> </div></td></tr><tr><td style="padding: 0in; width: 166.5pt;" width="222"><div class="MsoNormal">OR<o:p></o:p></div></td><td style="padding: 0in; width: 138pt;" width="184"><div class="MsoNormal">Liabilities<o:p></o:p></div></td><td style="padding: 0in; width: 0.75in;" width="72"><div class="MsoNormal">+<o:p></o:p></div></td><td style="padding: 0in; width: 177.75pt;" width="237"><div class="MsoNormal">Capital<o:p></o:p></div></td><td style="padding: 0in; width: 112.5pt;" width="150"><div class="MsoNormal">=<o:p></o:p></div></td><td style="padding: 0in; width: 3.5in;" width="336">Assets<o:p></o:p></td></tr></tbody></table>Suppose if the business borrows $5000 from a bank, dual aspect of this transaction will be  <o:p></o:p> <table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; width: 551px;"><tbody><tr><td style="padding: 0in; width: 168.75pt;" width="225"><div class="MsoNormal">Capital + Liabilities<o:p></o:p></div></td><td style="padding: 0in; width: 40.5pt;" width="54"><div class="MsoNormal">=<o:p></o:p></div></td><td style="padding: 0in; width: 201pt;" width="268"><div class="MsoNormal">Assets<o:p></o:p></div></td></tr><tr><td style="padding: 0in; width: 168.75pt;" width="225"><div class="MsoNormal">A  Loan<o:p></o:p></div></td><td style="padding: 0in; width: 40.5pt;" width="54"><div class="MsoNormal"> </div></td><td style="padding: 0in; width: 201pt;" width="268"><div class="MsoNormal"> </div></td></tr><tr><td style="padding: 0in; width: 168.75pt;" width="225"><div class="MsoNormal">10,000<o:p></o:p></div></td><td style="padding: 0in; width: 40.5pt;" width="54"><div class="MsoNormal">=<o:p></o:p></div></td><td style="padding: 0in; width: 201pt;" width="268"><div class="MsoNormal">15,000<o:p></o:p></div></td></tr></tbody></table>Thus the accounting Equation states that at any point of time the assets of any entity must be equal (in monetary terms) to the total of owner's equity and outsider's liabilities. As a matter of fact the entire system of double entry accounting is based on this concept.<o:p></o:p> <h2 align="left">Accounting period concept:<o:p></o:p></h2>According to this concept, the life of the business is divided into appropriate segments for studying the results shown by the business after each segment. Since the life of the business is considered to be indefinite (according to going concern concept) the measurement of income and studying financial position of the business according to the above concept, after a very long period would not be helpful in taking proper corrective steps at the appropriate time. It is, therefore, absolutely necessary that after each segment or time interval the businessman must stop and see, how things are going on. In accounting such a segment or time interval is called accounting period. It is usually of a year.  At the end of each accounting period and income statement/profit & loss Account and a Balance Sheet are prepared. The income statement discloses the profit or loss made by the business during the accounting period while Balance Sheet discloses the financial position of the business as on the last day of the accounting period. While preparing these statements a proper distinction has to be made between capital and revenue expenditure.<o:p></o:p> <h2 align="left">Matching concept:<o:p></o:p></h2>The aim of business is to earn profit. In order to ascertain the profit the costs (expenses) are matched to revenue. The difference between income from sales and costs of producing the goods will be the profit. When business is taken as a going concern then it becomes necessary to evaluate the performance periodically. A correct statement of income requires a distinction between past, present and future expenditures. A distinction between capital and revenue expenditure is also necessary. The revenues and costs of same period are matched. In other words, income made by the business during a period can be measured only when the revenue earned during a period is compared with the expenditure incurred for earning that revenue. The question when the payment was received or made is irrelevant.<o:p></o:p> <h2 align="left">Realization Concept:<o:p></o:p></h2>This concept emphasizes that profit should be considered only when realized. The question is at what stage profit should be deemed to have accrued? Whether at the time of receiving the order or at the time of execution of the order or at the time of receiving the cash? For answering this question the accounting is in conformity with the law and Recognizes the principle of law i.e., the revenue is earned only when the goods are transferred. It means that profit is deemed to have accrued when property I goods passes to the buyer, viz., when sales are made.<o:p></o:p> <h1> Accounting Conventions<o:p></o:p></h1>Learning Objectives:<o:p></o:p> What are accounting conventions? Explain important accounting conventions.<o:p></o:p> The term "conventions" includes those customs or traditions which guide the accountants while preparing the accounting statements. The following are the important accounting conventions.<o:p></o:p> <div style="margin-left: 0.5in; text-indent: -0.25in;">·         Convention of Disclosure<o:p></o:p></div><div style="margin-left: 0.5in; text-indent: -0.25in;">·         Convention of Materiality<o:p></o:p></div><div style="margin-left: 0.5in; text-indent: -0.25in;">·         Convention of Consistency<o:p></o:p></div><div style="margin-left: 0.5in; text-indent: -0.25in;">·         Convention of Conservatism<o:p></o:p></div><h2 align="left">Convention of Disclosure:<o:p></o:p></h2>The disclosure of all significant information is one of the important accounting conventions. It implies that accounts should be prepared in such a way that all material information is clearly disclosed to the reader. The term disclosure does not imply that all information that anyone could desire is to be included in accounting statements. The term only implies that there is to a sufficient disclosure of information which is of material in trust to proprietors, present and potential creditors and investors. The idea behind this convention is that anybody who wants to study the financial statements should not be misled. He should be able to make a free judgment. The disclosures can be in the way of foot notes. Within the body of financial statements, in the minutes of meeting of directors etc.<o:p></o:p> <h2 align="left">Convention of Materiality:<o:p></o:p></h2>It refers to the relative importance of an item or even. According to this convention only those events or items should be recorded which have a significant bearing and insignificant things should be ignored. This is because otherwise accounting will be unnecessarily over burden with minute details. There is no formula in making a distinction between material and immaterial events. It is a matter of judgment and it is left to the accountant for taking a decision. It should be noted that an item material for one concern may be immaterial for another. Similarly, an item material in one year may not be material in the next year.<o:p></o:p> <h2 align="left">Convention of Consistency:<o:p></o:p></h2>This convention means that accounting practices should remain Unchanged from one period to another. For example, if stock is valued at cost or market price whichever less is; this principle should be followed year after year. Similarly, if depreciation is charged on fixed assets according to diminishing balance method, it should be done year after year. This is necessary for the purpose of comparison. However, consistency does not mean inflexibility. It does not forbid introduction of improved accounting techniques. If a change becomes necessary, the change and its effect should be stated clearly.<o:p></o:p> <h2 align="left">Convention of Conservatism:<o:p></o:p></h2>This convention means a caution approach or policy of "play safe". This convention ensures that uncertainties and risks inherent in business transactions should be given a proper consideration. If there is a possibility of loss, it should be taken into account at the earliest. On the other hand, a prospect of profit should be ignored up to the time it does not materialize. On account of this reason, the accountants follow the rule 'anticipate no profit but provide for all possible losses'. On account of this convention, the inventory is valued 'at cost or market price whichever is less.' The effect of the above is that in case market price has gone down then provides for the 'anticipated loss' but if the market price has gone up then ignore the 'anticipated profits.' Similarly a provision is made for possible bad and doubtful debt out of current year's profits. Critics point out that conservatism to an excess degree will result in the creation of secrets reserves. This will be quite contrary to the doctrine of disclosure.<o:p></o:p> <div class="MsoNormal"> </div>

Question 2: Explain the accounting principle, accounting convention and accounting standards(IAS)?

Ø Question 2: Explain the accounting principle, accounting convention and accounting standards(IAS)? Accounting Concepts Learning object...

Ø Question: Explain the users of Financial Statement?

<div class="MsoListParagraph" style="line-height: 115%; margin-bottom: 10.0pt; margin-left: .25in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l1 level1 lfo6;">ØQuestion: Explain the users of Financial Statement?<o:p></o:p></div><div class="MsoNormal"> </div><div align="center" class="MsoNormal" style="text-align: center;">Financial Accounting<o:p></o:p></div>Accounting can be defined as an information system that provides information about the results of a business' performance and its economic position.The systematic recording, reporting, and analysis of financial transactions of a business. The person in charge of accounting is known as an accountant, and this individual is typically required to follow a set of rules and regulations, such as the Generally Accepted Accounting Principles. Accounting allows a company to analyze the financial performance of the business, and look at statistics such as net profit.<o:p></o:p> <div class="MsoNormal">Financial statements are intended to be understandable by readers who have "a reasonable knowledge of business and economic activities and accounting and who are willing to study the information diligently." There are different kinds of users of financial statements. The users of financial statements may be inside or outside the business. <o:p></o:p></div><table align="left" border="0" cellpadding="0" class="MsoNormalTable"> <tbody><tr> <td style="padding: .75pt .75pt .75pt .75pt;"></td> </tr></tbody></table><div class="MsoNormal">The users of financial statements use financial statements for a large variety of business purposes and their ability to understand and analyze financial statements helps them to succeed in the business world.  <o:p></o:p></div><div align="center" class="MsoNormal" style="text-align: center;">Classification of Users of Financial Statements<o:p></o:p></div><div class="MsoNormal">The users may be classified into internal and external users. Internal users refer to managers who use accounting information in making decisions related to the company's operations. External users, on the other hand, are not involved in the operations of the company but hold some financial interest. They may be classified further into users with direct financial interest – the owners, investors, lenders and creditors, and users with indirect financial interest – government, employees, customers and the others. The various users of financial statements are classified and detailed as follows: <o:p></o:p></div><div class="MsoNormal">1. Internal Users  The internal users of financial statements are individuals who have direct bearing with the organization. They may include:<o:p></o:p></div><div class="MsoListParagraph">Ø  Management: for analyzing the organization's performance and position and taking appropriate measures to improve the company results.In small businesses, management may include the owners. In huge organizations, however, management is usually made up of hired professionals who are entrusted with overall responsibility of operating the business or a part of the business. They act as agents of the owners. The managers, whether owner or hired, regularly face economic decisions – How much supplies will we purchase? Do we have the cash? How much did we make last year? Did we meet our targets? All those, and many other decisions, require analysis of accounting information.<o:p></o:p></div><div class="MsoListParagraph">Ø  Owners or investors: for analyzing the viability and profitability of their investment and determining any future course of action. Stockholders of corporations need financial information to help them make decisions on what to do with their shares of stock (investments) – hold, sell, or buy more shares. Potential investors need information to assess the company's potential for success and profitability. In the same way, small business owners need financial information to determine if the business is profitable and whether to continue or drop it.<o:p></o:p></div><div class="MsoListParagraph">Ø  Employees: The financial reports or the financial statements are of immense use to the employees of the company for making collective bargaining agreements. Such statements are used for discussing matters of promotion, rankings and salary hike. Employees are interested in the company’s profitability and stability. They are after the ability of the company to pay salaries and provide employee benefits. They may also be interested in the company’s financial position and performance to assess the possibility of company expansion and career opportunities.<o:p></o:p></div><div class="MsoNormal"> 2. External Users External users of accounting information include the following:<o:p></o:p></div><div class="MsoListParagraph">Ø  Creditor: for determining the credit worthiness of the organization. Terms of credit are set according to the assessment of their customers' financial health. Creditors include suppliers as well as lenders of finance such as banks. The vendors who extend credit to a business require financial statements to assess the creditworthiness of the business.<o:p></o:p></div><div class="MsoListParagraph">Ø  Government: The financial statements of different companies are also used by the government to analyze whether the tax paid by them is accurate and is in line with their financial strength. – Governing bodies of the state, especially the tax authorities, are interested in an entity's financial information for taxation and regulatory purposes. Taxes are computed based on the results of operations and other tax bases. In general, the state would like to know how much the taxpayer is making to determine the tax due thereon.<o:p></o:p></div><div class="MsoListParagraph">Ø  Regulatory Authorities: for ensuring that the company's disclosure of accounting information is in accordance with the rules and regulations set in order to protect the interests of the stakeholders who rely on such information in forming their decisions.<o:p></o:p></div><div class="MsoListParagraph">Ø  General Mass and Media: The common people as well as media also make part of the users of financial statements. Anyone outside the company such as researches, students, analysts and others are interested in the financial statements of the company for varied reasons.<o:p></o:p></div><div class="MsoListParagraphCxSpLast" style="line-height: 115%; margin-bottom: 10.0pt; margin-left: .25in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l3 level1 lfo5;"> </div>

Ø Question: Explain the users of Financial Statement?

Ø Question: Explain the users of Financial Statement? Financial Accounting Accounting can be defined as an information system that provides...