Lecture No. 7 Parties Interested in Financial Statements
Lecture No. 7 Parties Interested in Financial Statements
Lecture No. 7 Parties Interested in Financial Statements
Lecture No. 7
PARTIES INTERESTED IN FINANCIAL STATEMENTS
Investors:
Shareholders or proprietors of the business are interested in the well being of the
business. They like to know the earning capacity of the business and its prospects
of future growth.
Management:
The management is interested in the financial position and performance of the
enterprise as a whole and of its various divisions. It helps them in preparing
budgets and assessing the performance of various departmental heads.
Trade unions:
They are interested in financial statements for negotiating the wages or salaries
or bonus agreement with the management.
Lenders:
Lenders to the business like debenture holders, suppliers of loans and lease are
interested to know short term as well as long term solvency position of the
entity.
Tax authorities:
Tax authorities are interested in financial statements for determining the tax
liability.
Researchers:
They are interested in financial statements in undertaking research work in
business affairs and practices.
Employees:
They are interested to know the growth of profit. As a result of which they can
demand better remuneration and congenial working environment.
Government and their agencies:
Stock exchange:
The stock exchange members take interest in financial statements for the purpose
of analysis because they provide useful financial information about companies.
Limitation # 1
Assets on the balance sheet are always shown at the original purchase price
(historical cost) even though the current value may be different.
Limitation # 2
Some figures on the financial statements are based on subjective estimates and
assumptions. Management could possibly change net income by changing these
estimates. Depreciation is one example where estimates and assumptions are
used.
Limitation # 3
There are certain other items which are not reported in the balance sheet even
though the firm may consider them to be of considerable value.
Examples
Image/reputation of the firm
The value of its human resources (people)