The major objectives of financial reporting exist to give current and potential investors (or business owners) an accurate picture of how efficiently a business is being run. The information in financial reports should satisfy three major goals. First, accurate and effective financial reporting should be understandable to anyone that has general knowledge of business transactions; second, financial reports need to give an accurate assessment of a business’ cash flows (primarily inflows) and third, financial reports should give a clear picture of a companies resources to include available resources as well as the affect of all business transactions on those resources (Kieso, Weygandt & Warfield, 2007).
The information contained in financial reporting can be used by a number of different people in a few different ways. Financial accounting is the process of collecting and preparing all the financial information pertaining to an entity (or company). The users of these reports can be within a company (internal) or outside the company (external). Internal users are primarily managers who need to analyze the financial information to determine how well their particular scope of responsibilities are operating and, potentially, to determine any changes that may need to be made in the future. External users include shareholders, creditors, various government agencies, and possibly any unions that may exist (Kieso, et. al. 2007). These external users analyze financial reports for different reasons, but they are all looking to determine what decisions they must make in regard to the business or entity in question. For example, creditors are looking for adequate cash flow or capital to ensure they will be paid for their services and investors are looking to determine the overall health of the company to ensure a good return on their investment.
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2007). Intermediate Accounting (12th
ed.). New York: Wiley.