CORPORATE ACCOUNTING

ACCOUNTING:

Accounting is the process of entering the transactions in the books and records in the
manner specified by the law. To facilitate for consolidating the information at the end of the
financial year to make the profit and also the balance sheet to find out the profit / loss made during
the year and also to understand the financial position of the organisation.

OBJECTIVES OF ACCOUNTING:

Accounting can be defined as the systematic recording, reporting of financial transactions of

a business and a person who manages the (accountant) accounts of any company or financial
institutions are called an accountant.

The main purpose of accounting is to allow a company to analyze its

statistical data’s and prepare its financial accounts. There are certain objectives of accounting. They
are the following:

1. To maintain systematic records: accounting keeps the systematic records of all the
financial transactions of a company or any financial institutions proper decision making and
analysis of profits are impossible if records are not maintained systematically in a company.
Even taking tracking previous transaction or remembering the minute detail of transaction
would be impossible without maintain these records.
2. Estimating profit and loss: it is impossible to estimate the profit and loss of a company
and even a household if proper accountancy records are not made. Moreover without the
proper estimation of profit and loss it is impossible to make any further financial decisions
for a company.
3. Balance sheet: it is easy to understand the financial position of a company when proper
balance sheet is maintained by the accountant or any other individual of a company. It is
difficult to set future targets without the estimation of the financial position of a company.
4. Facilitating rational decision making: as a result of accounting in any particular company,
it is easy for a company to make rational decisions in matters relating to the investment of
capital raising the salaries and providing incentives to the working staff.
5. Striking a balance: in order to maintain the balance between the input and output of the
cash flow accounting is extremely essential to maintain the financial accounts of a company.
6. True financial statement: in order to gain a proper understanding of the financial status
and position of a company auditing is essential. As a result the company can understand
whether or not it is leaded to the right direction.
7. Prevention and detection of errors: when systematic financial accounts are maintained a
proper trail and errors is conducted as a result of which no errors are committed and even
the future errors are corrected.
8. Prevention and detection of fraud: as a result of maintained of proper accidents, it is
impossible for any member of the company to conduct any financial activity that will fill his
own pocket and empty the company as a result of proper maintained of accounts, the fraud
ratio of a company drops to zero.

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 9. Cost and prosperity audit: proper cost and property audit is conducted by mean of
accounting as a result of which proper estimation is beneficiary the company to a large
extent.
10. Management, tax and social audit: apart from cost and prosperity audit, management,
tax and social auditing is also conducted by the means of accounting. It is impossible to
maintain a company without the help of an accountant in general.

SCOPE OF CORPORATE ACCOUNTING:

1. Estimating financial requirements: primary task associated with financial manager is to

calculate long term and short term financial requirements out of his business. To make
certain you’ve got sufficient money, it is crucial to calculate the financial requirements
before beginning a newer or expanding a current business.
2. Deciding capital structure: the capital structure looks how a firm finances their general
operations, research and development by making use of various sources of funds. Financial
debts appear in the form of bond issues or long- term bonds.
3. Choosing the source of finance: one efficient financial control calls concerning various
type of decision making. A major significant more for any company should determine that
sources of funds. Broadly, that the category of finance presented for any business is debt
and also equity.
4. Selecting a pattern of investment: investment analysis actually broad term which
encompasses a lot of different aspects to investing. This include evaluating historical returns
to make predictions about future returns, selecting a right type of investment vehicle which
best suit for investors requirement or analyzing bonds/ stocks for evaluation and investor
specificity.
5. Proper cash management: cash management relates to a diverse area of finance involving
the collection, planning, handling and use of cash. This involves evaluating promote liquidity.
Assets/ investments and cash flow. The objective of cash management should be a regulate
the cash balances or cash liquidity.
6. Implementing financial controls: financial controls are definitely processes, procedures
and policies that are implemented in order to handle funds. They play a role in organisations
financial goals to fulfilling commitments of corporate governance, due diligence and
fiduciary duty.
7. Proper usage of surpluses: surplus is that levels of an amount or resource in which
exceeds your section that is used. A surplus can be used towards explain countless excees
assets plus income, profits, goods and capital. A surplus frequently occurs in financial
budgets, even specifying have always been below the earnings. Finance exceeds is
associated with demand and supply needs.

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ROLE OF CORPORATE ACCOUNTANT:

1. Maintenance of books and records: The primary role of accountant is to offer his
services for maintaining systematic records of financial transactions in order to ascertain the
net profit or loss for the accounting period and the financial position.
2. Consolidating the information: Information consideration is defined as the process of
evaluation and compression of relevant document in order to provide definite user groups in
developing countries with reliable and concise information.
3. Setting control devices for prevention of errors, frauds and mistakes: Accounting
errors and fraud are common in most business but there is a difference between fraud and
misinterpretation of communication or accounting regulations. The role of accountant in
preventing fraud becomes important in the last decades and importance of auditing in
corruption is increasingly revealed.
4. Preparation of the financial statements: The preparation of the financial statements
involves the process of aggregating accounting information into a standardized set of
financials. The completed financial statements are then distributed to lenders, creditors and
investors who we them to evaluate the performance, liquidity and cash flows of a business.
5. Coordination with other functional departments:

6. Providing require information to top management for taking policy decisions:

Reports to the senior management team are important responsibilities for all accountants.
More than financial statements, these accountants create reports for all things financial that
relate to organisation. Accountants interpret the impact of the accounting results.
7. It has to provide all the required information to statutory officers for audit
purpose: Usually, an accountant audits the books of the entities like limited companies,
firms etc.., he ensures that the entities prepare the financial statements in accordance with
generally accepted accounting principles standards and legal conditions. He shows a true
and fair view of the financial position.

ANALYSIS OF FINANCIAL STATEMENTS:

Financial statements viz.., profit and loss account and balance sheet is the India caters of
two significant factors, i.e. profitability and financial soundness process of accounting. A complete
set of financial statements consist of income statement or profit and loss account ,balance sheet or
position statement , statement of charges in owners accounts i.e., profit and loss appropriation
account and statement of changes in financial position.

The importance of financial statements lies not in their preparation but in their analysis. The
financial analysis emphasis on evaluating the financial position and the results of the preparation of
business. It involves presentation of information useful to the business managers, investors,
creditors and all others invested in the information containing in the financial statements.

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 Analysis of financial statements means preparation of the information in such a manner so
as to afford a full diagnosis the profitability and financial position of the firm concerned.

Financial statement analysis of a firm can be undertaken in different ways. There is no the
best type of financial statement can be done the basis number of firms, partly who analysing and
interpreting number of years figures used etc..,

➢ SIGNIFICANCE:

Financial analysis is the process of identifying the financial strength and weakness of
the firm by properly establishing relationship between the items of the balance sheet and the profit
and loss account. Financial analysis can be undertaken by the management of the firm or by parties
outside the firm viz... Owners, trade creditors, lenders, investors, labour unions, analysis and others.

Financial analysis is useful and significant to different users in the following way.

1) To the financial manager

2) To the management
3) To the trade creditors
4) To the lenders
5) To the investors
6) To the labour unions
➢ TOOLS OF FINANCIAL ANALYSIS:

Financial statements analysis is done to emphasise the comparative and relative importance of the
data presented and at the same time evaluation the position of the firm. This purpose of financial
data analysis is satisfied by using various suitable techniques. The techniques show the relationship
and changes most widely known techniques of financial statement analysis are:

1) Comparative statements
2) Common size statements
3) Trend analysis
4) Ratio analysis
5) Funds flow analysis
6) Cash flow analysis

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 Unit-2

VALUATION OF SHARES

SHARES:
A share in the share capital of the company, including stock, is the definition of the term ‘Share’. This is
in accordance with Section 2(84) of the Companies Act, 2013. In other words, a share is a measure of
the interest in the company’s assets held by a shareholder. In this article, we will look at the different
types of shares like preferential and equity shares. Further, we will understand certain definitions and
regulations surrounding them.

The Memorandum and Articles of Association of the company prescribe the rights and obligations of
shareholders. Further, a shareholder must have certain contractual and other rights as per
the provisions of the Companies Act, 2013.

Section 44 of the Companies Act, 2013, states that shares or debentures or other interests of any
member in a company are movable properties. Also, they are transferable in the manner prescribed in
the Articles of the company.

Types of Shares
A share or the proportion of interest of a shareholder is equal to the proportion of the amount paid to
the total capital payable to the company. Let us look at the various types of shares a company can issue
– equity shares and preferential shares.

According to Section 43 of the Companies Act, 2013, the share capital of a company is of two types:

1. Preferential Share Capital

2. Equity Share Capital

Preferential Share Capital

The preferential share capital is that part of the Issued share capital of the company carrying a
preferential right for:

• Dividend Payment – A fixed amount or amount calculated at a fixed rate. This might/might not be
subject to income tax.
• Repayment – In case of a winding up or repayment of the amount of paid-up share capital, there is
a preferential right to the payment of any fixed premium or premium on any fixed scale. The
Memorandum or Articles of the company specifies the same.

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Equity Share Capital – Equity Shares
All share capital which is NOT preferential share capital is Equity Share Capital. Equity shares are of two
types:

1. With voting rights

2. With differential rights to voting, dividends, etc., in accordance with the rules.
In 2008, Tata Motors introduced equity shares with differential voting rights – the ‘A’ equity shares.
According to the issue,

• Every 10 ‘A’ equity shares have one voting right

• ‘An’ equity shares get 5 percentage points more dividend than the ordinary shares.
Due to the difference in voting rights, the ‘A’ equity shares traded at a discount to ordinary shares with
complete voting rights.

Deeming of Capital as Preferential Capital

In certain cases, capital is deemed as preferential capital even though it is entitled to either or both of
the following rights:

1. For dividends, apart from the preferential rights to amounts specified above, it can participate
(fully or to a certain extent) with capital not entitled to the preferential rights.
2. In case of a winding up, apart from the preferential right of the capital amounts specified above, it
can participate (fully or to a certain extent), with capital not entitled to preferential rights in any
surplus remaining after repaying the entire capital.
Remember, Section 43 is not applicable to private companies if the Memorandum or Articles of
Associates specifies it.

NEED FOR VALUATION OF SHARES:

Shares of a company are valued on many occasions like:

1. At the time of purchase and sale of shares.

2. When a block of shares is to be purchased to acquire a controlling power in another company.

3. At the time of amalgamation, absorption, etc.., for adjusting the rights of shareholders

4. To determine the amount payable to dissentient shareholders at the time of reconstruction.

5. For the assessment of estate duty, wealth and gift tax by tax authorities.

6. When shares are pledged as a security against a loan.

7. When shares of one class are converted into another class and

8. When government wants to compensate the shareholders on the nationalisation of a company.

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FACTORS EFFECTING ON VALUE OF SHARES:

While valuing shares following factors are taken care of because they influence the
value of shares:

a) Demand and supply of shares

b) The nature of business
c) The possibility of competition
d) Others factors like political influence, general peace in the country etc..,
e) Availability of ready market for future sale.

METHODS OF VALUATION OF SHARES:

The following various methods for valuation of shares:

1. Net asset method / intrinsic value method

2. Yield method / income method
3. Fair value method
4. Simultaneous equation method

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 UNIT- 4
ACCOUNTING STANDARDS:

An accounting standard is a common set of principles, standards, and procedures that

define the basis of financial accounting policies and practices. Accounting standards apply to the full
breadth of an entity's financial picture, including assets, liabilities, revenue, expenses and
shareholders' equity.

List of Accounting Standards (AS 1~32) of ICAI:

Accounting Standards (i.e. AS 1~32) have been issued/ amended by the Accounting
Standards Board of ICAI from time to time, to establish uniform standards for preparation of
financial statements, in accordance with generally accepted accounting practices (GAAP) in India and
for better understanding of the users.

These standards are mandatory on the dates specified either in the respective document or by
notification issued by the Council of the ICAI.

These Accounting Standards are applicable to non-corporate entities including Small and Medium
sized Enterprises (SMEs).

Also, ICAI recommends to follow the Accounting Standards notified by MCA vide Companies
(Accounting Standards) Rules, 2006 and related amendments, which are applicable to companies
including Small and Medium sized Companies to whom Indian Accounting Standards (Ind AS) are not
applicable.

List of ICAI’s Mandatory Accounting Standards (AS 1~29)

List of Mandatory Accounting Standards of ICAI (as on 1 July 2017 and onwards), is as under:

AS 1 Disclosure of Accounting Policies: This Standard deals with the disclosure of significant
accounting policies which are followed in preparing and presenting financial statements.

AS 2 Valuation of Inventories: This Standard deals with the determination of value at which
inventories are carried in the financial statements, including the ascertainment of cost of inventories
and any write-down thereof to net realisable value.

AS 3 Cash Flow Statements: This Standard deals with the provision of information about the historical
changes in cash and cash equivalents of an enterprise by means of a Cash Flow Statement which
classifies cash flows during the period from operating, investing and financing activities.

AS 4 Contingencies and Events Occurring After Balance Sheet Date: This Standard deals with the
treatment of contingencies and events occurring after the balance sheet date.

AS 5 Net profit or Loss for the period, Prior Period Items and Changes in Accounting Policies: This
Standard should be applied by an enterprise in presenting profit or loss from ordinary activities,
extraordinary items and prior period items in the Statement of Profit and Loss, in accounting for
changes in accounting estimates, and in disclosure of changes in accounting policies.

AS 7 Construction Contracts: This Standard prescribes the accounting for construction contracts in
the financial statements of contractors.

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 AS 9 Revenue Recognition: This Standard deals with the bases for recognition of revenue in the
Statement of Profit and Loss of an enterprise. The Standard is concerned with the recognition of
revenue arising in the course of the ordinary activities of the enterprise from: a) Sale of goods; b)
Rendering of services; and c) Interest, royalties and dividends.

AS 10 Property, Plant and Equipment: The objective of this Standard is to prescribe the accounting
treatment for property, plant and equipment (PPE).

AS 11 The Effects of Changes in Foreign Exchange Rates: AS 11 lays down principles of accounting for
foreign currency transactions and foreign operations, i.e., which exchange rate to use and how to
recognise in the financial statements the financial affect of changes in exchange rates.

AS 12 Government Grants: This Standard deals with accounting for government grants. Government
grants are sometimes called by other names such as subsidies, cash incentives, duty drawbacks, etc.

AS 13 Accounting for Investments: This Standard deals with accounting for investments in the
financial statements of enterprises and related disclosure requirements.

AS 14 Accounting for Amalgamations: This Standard deals with accounting for amalgamations and
the treatment of any resultant goodwill or reserves.

AS 15 Employee Benefits: The objective of this Standard is to prescribe the accounting treatment and
disclosure for employee benefits in the books of employer except employee share-based payments.
It does not deal with accounting and reporting by employee benefit plans.

AS 16 Borrowing Costs: This Standard should be applied in accounting for borrowing costs. This
Standard does not deal with the actual or imputed cost of owners’ equity, including preference share
capital not classified as a liability.

AS 17 Segment Reporting: The objective of this Standard is to establish principles for reporting
financial information, about the different types of segments/ products and services an enterprise
produces and the different geographical areas in which it operates.

AS 18 Related Party Disclosures: This Standard should be applied in reporting related party
relationships and transactions between a reporting enterprise and its related parties. The
requirements of this Standard apply to the financial statements of each reporting enterprise and also
to consolidated financial statements presented by a holding company.

AS 19 Leases: The objective of this Standard is to prescribe, for lessees and lessors, the appropriate
accounting policies and disclosures in relation to finance leases and operating leases.

AS 20 Earnings Per Share: AS 20 prescribes principles for the determination and presentation of
earnings per share which will improve comparison of performance among different enterprises for
the same period and among different accounting periods for the same enterprise.

AS 21 Consolidated Financial Statements: The objective of this Standard is to lay down principles and
procedures for preparation and presentation of consolidated financial statements. These statements
are intended to present financial information about a parent and its subsidiary(ies) as a single
economic entity to show the economic resources controlled by the group, obligations of the group
and results the group achieves with its resources.

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 AS 22 Accounting for Taxes on Income: The objective of this Standard is to prescribe accounting
treatment of taxes on income since the taxable income may be significantly different from the
accounting income due to many reasons, posing problems in matching of taxes against revenue for a
period.

AS 23 Accounting for Investments in Associates: This Standard should be applied in accounting for
investments in associates in the preparation and presentation of consolidated Financial Statements
(CFS) by an investor.

AS 24 Discontinuing Operations: The objective of AS 24 is to establish principles for reporting

information about discontinuing operations, thereby enhancing the ability of users of financial
statements to make projections of an enterprise’s cash flows, earnings generating capacity, and
financial position by segregating information about discontinuing operations from information about
continuing operations. AS 24 applies to all discontinuing operations of an enterprise.

AS 25 Interim Financial Reporting: This Standard applies if an entity is required or elects to publish
an interim financial report. The objective of AS 25 is to prescribe the minimum content of an interim
financial report and to prescribe the principles for recognition and measurement in complete or
condensed financial statements for an interim period.

AS 26 Intangible Assets: AS 26 prescribes the accounting treatment for intangible assets (i.e.
identifiable non-monetary asset, without physical substance, held for use in the production or supply
of goods or services, for rental to others, or for administrative purposes).

AS 27 Financial Reporting of Interests in Joint Ventures: The objective of AS 27 is to set out principles
and procedures for accounting for interests in joint ventures and reporting of joint venture assets,
liabilities, income and expenses in the financial statements of venturers and investors.

AS 28 Impairment of Assets: The objective of AS 28 is to prescribe the procedures that an enterprise

applies to ensure that its assets are carried at no more than their recoverable amount. The asset is
described as impaired if its carrying amount exceeds the amount to be recovered through use or sale
of the asset and AS 28 requires the enterprise to recognise an impairment loss in such cases. It should
be noted that AS 28 deals with impairment of all assets unless specifically excluded from the scope of
the Standard.

AS 29 Provisions, Contingent Liabilities and Contingent Assets: The objective of AS 29 is to ensure

that appropriate recognition criteria and measurement bases are applied to provisions and contingent
liabilities and that sufficient information is disclosed in the notes to the financial statements to enable
users to understand their nature, timing and amount. The objective of this Standard is also to lay down
appropriate accounting for contingent assets.

List of ICAI’s Non-Mandatory Accounting Standards (AS 30~32)

ICAI has announced on 15 Nov. 2016 that ‘AS 30- Financial Instruments: Recognition and
Measurement’, ‘AS 31- Financial Instruments: Presentation’, ‘AS 32- Financial Instruments:
Disclosures’ stands withdrawn. For details, please refer: AS-30, AS-31, and AS-32 withdrawn by ICAI.

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OBJECTIVES OF ACCOUNTING STANDARDS:
Accounting is often considered the language of business, as it communicates to others the financial
position of the company. And like every language has certain syntax and grammar rules the same is true
here. These rules in the case of accounting are the Accounting Standards (AS). They are the framework
of rules and regulations for accounting and reporting in a country. Let us see the main objectives of
forming these standards.

1. The main aim is to improve the reliability of financial statements. Now because the financial
statements have to be made following the standards the users can rely on them. They know that
not conforming to these standards can have serious consequences for the companies.
2. Then there is comparability. Following these standards will allow for inter-firm and intra-firm
comparisons. This allows us to check the progress of the firm and its position in the market.
3. It also looks to provide one set of accounting policies that include the necessary disclosure
requirements and the valuation methods of various financial transactions.

BENEFITS OF ACCOUNTING STANDARDS:

Accounting Standards are the ruling authority in the world of accounting. It makes sure that the
information provided to potential investors is not misleading in any way. Let us take a look at the
benefits of AS.

1] Attains Uniformity in Accounting

Accounting Standards provides rules for standard treatment and recording of transactions. They even
have a standard format for financial statements. These are steps in achieving uniformity
in accounting methods.

2] Improves Reliability of Financial Statements

There are many stakeholders of a company and they rely on the financial statements for their
information. Many of these stakeholders base their decisions on the data provided by these financial
statements. Then there are also potential investors who make their investment decisions based on such
financial statements.

So it is essential these statements present a true and fair picture of the financial situation of
the company. The Accounting Standards (AS) ensures this. They make sure the statements are reliable
and trustworthy.

3] Prevents Frauds and Accounting Manipulations

Accounting Standards (AS) lay down the accounting principles and methodologies that all entities must
follow. One outcome of this is that the management of an entity cannot manipulate with financial data.
Following these standards is not optional, it is compulsory.

So these standards make it difficult for the management to misrepresent any financial information. It
even makes it harder for them to commit any frauds.

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4] Assists Auditors

Now the accounting standards lay down all the accounting policies, rules, regulations, etc in a written
format. These policies have to be followed. So if an auditor checks that the policies have been correctly
followed he can be assured that the financial statements are true and fair.

5] Comparability

This is another major objective of accounting standards. Since all entities of the country follow the same
set of standards their financial accounts become comparable to some extent. The users of the financial
statements can analyze and compare the financial performances of various companies before taking
any decisions.

Also, two statements of the same company from different years can be compared. This will show the
growth curve of the company to the users.

6] Determining Managerial Accountability

The accounting standards help measure the performance of the management of an entity. It can help
measure the management’s ability to increase profitability, maintain the solvency of the firm, and other
such important financial duties of the management.

Management also must wisely choose their accounting policies. Constant changes in the accounting
policies lead to confusion for the user of these financial statements. Also, the principle of consistency
and comparability are lost.

Limitations of Accounting Standards

There are a few limitations of Accounting Standards as well. The regulatory bodies keep updating the
standards to restrict these limitations.

1] Difficulty between Choosing Alternatives

There are alternatives for certain accounting treatments or valuations. Like for example, stocks can be
valued by LIFO, FIFO, weighted average method, etc. So choosing between these alternatives is a tough
decision for the management. The AS does not provide guidelines for the appropriate choice.

2] Restricted Scope

Accounting Standards cannot override the laws or the statutes. They have to be framed within the
confines of the laws prevailing at the time. That can limit their scope to provide the best policies for the
situation.

Difference between US GAAP and Indian GAAP

1. Underlying assumptions 6. Investments

2. Depreciation 7. Foreign currency transactions
3. Prudence Vs rules 8. Long term debts
4. Format/ Presentation of financial statements 9. Goodwill
5. Consolidation of subsidiary companies 10. Proposed dividend

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 UNIT -5
Financial reporting:

Financial statements (or financial reports) are formal records of the financial activities and
position of a business, person, or other entity. In any industry, whether manufacturing or service, we
have multiple departments, which function day in day out to achieve organizational goals. The
functioning of these departments may or may not be interdependent, but at the end of the day they
are linked together by one common thread – Accounting & Finance department. The accounting &
financial aspects of each and every department are recorded and are reported to various
stakeholders.

There are two different types of reporting – Financial reporting for various
stakeholders & Management Reporting for internal Management of an organization. Both this
reporting is important and is an integral part of Accounting & reporting system of an organization.
But considering the number of stakeholders involved and statutory & other regulatory requirements,
Financial Reporting is a very important and critical task of an organization. It is a vital part of
Corporate Governance.

OBJECTIVES OF FINANCIAL REPORTING

According to International Accounting Standard Board (IASB), the objective of financial

reporting is “to provide information about the financial position, performance and changes in
financial position of an enterprise that is useful to a wide range of users in making economic
decisions.”
The following points sum up the objectives & purposes of financial reporting –

1. Providing information to the management of an organization which is used for the purpose of
planning, analysis, benchmarking and decision making.
2. Providing information to investors, promoters, debt provider and creditors which is used to enable
them to male rational and prudent decisions regarding investment, credit etc.
3. Providing information to shareholders & public at large in case of listed companies about various
aspects of an organization.
4. Providing information about the economic resources of an organization claims to those resources
(liabilities & owner’s equity) and how these resources and claims have undergone change over a
period of time.
5. Providing information as to how an organization is procuring & using various resources.

IMPORTANCE OF FINANCIAL REPORTING

The importance of financial reporting cannot be over emphasized. It is required by each and every
stakeholder for multiple reasons & purposes. The following points highlights why financial reporting
framework is important –
1. In help and organization to comply with various statues and regulatory requirements. The
organizations are required to file financial statements to ROC, Government Agencies. In case of

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 listed companies, quarterly as well as annual results are required to be filed to stock exchanges and
published.
2. It facilitates statutory audit. The Statutory auditors are required to audit the financial statements of
an organization to express their opinion.
3. Financial Reports forms the backbone for financial planning, analysis, benchmarking and decision
making. These are used for above purposes by various stakeholders.
4. Financial reporting helps organizations to raise capital both domestic as well as overseas.
5. On the basis of financials, the public in large can analyze the performance of the organization as well
as of its management.

USERS OF FINANCIAL REPORTING

The objective of accounting is to provide information to users for decision-making. The users of accounting
information include: the owners and investors, management, suppliers, lenders, employees, customers, the
government, and the general public.

1. Owners and investors

Stockholders of corporations need financial information to help them make decisions on what to do with their
investments (shares of stock), i.e. hold, sell, or buy more.
Prospective 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, improve or drop it.
2. Management
In small businesses, management may include the owners. In huge organizations, however, management is
usually made up of hired professionals who are entrusted with the responsibility of operating the business or a
part of the business. They act as agents of the owners.
3. Lenders
Lenders of funds such as banks and other financial institutions are interested in the company’s ability to pay
liabilities upon maturity (solvency).
4. Trade creditors or suppliers
Like lenders, trade creditors or suppliers are interested in the company’s ability to pay obligations when they
become due. They are nonetheless especially interested in the company's liquidity – its ability to pay short-
term obligations.
5. Government
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 makes to determine the tax due
thereon.
6. Employees
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
7. Customers
When there is a long-term involvement or contract between the company and its customers, the customers
become interested in the company’s ability to continue its existence and maintain stability of operations. This
need is also heightened in cases where the customers depend upon the entity.
For example, a distributor (reseller), the customer in this case, is dependent upon the manufacturing company
from which it purchases the items it resells.
8. General Public
Anyone outside the company such as researchers, students, analysts and others are interested in the financial
statements of a company for some valid reason.

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