(a) Objectives of Financial Accounting
(b)Characteristics of good accounting information
(c) Users of accounting information and their interests
Explanation
(a) Objectives of Financial Accounting:
(i) To provide information to satisfy statutory/legal requirements;
(ii) To assist the business to ascertain the profit or loss made for a period;
(iii) To help management check embezzlement and other fraudulent activities;
(iv) To help users make investment decisions;
(v) To facilitate comparison of financial statements of businesses;
(vi) To help management make references to past transactions when taking decision;
(vii) To provide information to be used as a basis for future planning i.e. budgeting;
(viii) To assist management ascertain tax payable by the business to relevant tax authorities;
(ix) To provide information on assets and liabilities of an organization;
(x) To provide information on changes in resources and obligations of an organization;
(xi) To provide information about an organization’s accounting policies;
(xii) To enable an organization keep proper records of financial transactions;
(xiii)To disclose the owners’ stake/capital in the business;
(xiv) To provide information for evaluation of management performance.
(b) Characteristics of good accounting information:
(i) Understandability: This requires accounting information to be clear so that users with reasonable knowledge of business matters would understand it.
(ii) Relevance: Financial information must be relevant to the decision making needs of the users by helping them evaluate past, present and future events.
(iii) Timeliness: For accounting information to be most useful to users, it must be available in time to be used in decision making.
(iv) Comparability: This requires accounting information to be prepared to enable comparison of results and events of different periods.
(v) Completeness: Accounting information must be adequate within the limits of materiality.
(vi) Reliability: Accounting information must be free from material errors and bias (objectivity).
(c) Users of accounting information and their interests:
(i) Management/Managers: Their interest is:
- to know how the business is progressing.
- to know the financial position of the business.
(ii) Owners/shareholders: Their interest is:
- to know whether the business is profitable or not.
- to know about the security of their investments.
- to know whether the business can pay dividend.
(iii) Bankers: The bank will need accounting information:
- to assess the credit-worthiness of the business.
- to evaluate the ability of the business to pay back when the facility is due.
(iv) Tax Authorities:
- They need the information to be able to compute the tax payable.
- Existing and Potential Investors:
- For existing investors, they need information to enable them decide whether to continue investing in the business or not.
- For potential investors, their interest is to assess the viability of the business.
(v) Competitors: Their interest is to assess the strength and weaknesses of other similar businesses in order to improve their operations.
(vi) Employees: Their interest is to:
- evaluate the security of their jobs.
- have a basis for collective bargaining.
(vii) Other regulatory bodies: Their interest is to ensure compliance with regulatory requirements and standards.
(viii) Trade unions: Their interest is to have basis for negotiating for improved conditions of service.
(ix) Customers/debtors: Their interest is:
- to determine the ability of the business to regularly meet their orders.
- to assess the ability of the business to offer them credit facilities.
(x) Suppliers/creditors: Their interest is:
- to determine the ability of the business to pay its debt.
- To determine how long the business would take to pay its debt.
(xi) Financial analysts/researchers: They need financial information for advisory and academic purposes.
(xii) General public: They need financial information to appraise the efficiency and social responsibility of the business.