Question

3. Why should the investors and creditors be confident that the financial statements are accurately produced?

4. Are the financial statements primarily and internal report rather than used externally of the firm?

Answer 1

ANSWER 3:

Financial statements of any enterprise, whether a firm or a company, are the primary source of information about the financial and solvency position of that enterprise.

Investors or Creditors take their respective decisions of investment and credit allowance on the basis of the operations and financial position of the company. Financial statements are the only source of information to make such decisions.

Moreover, a company's financial statements are to be mandatorily audited every fiscal year. Thus, the true & fair view of the financial statements is presented by the auditors before the release of those statements for the external users.

This procedure of examination and authentication make the financial data reliable and flaw-less.

ANSWER 4:

Financial statements have a variety of users ranging from the company's management to external parties engaged with the company. It is not possible to state that financial statements are primarily for internal purposes. The whole functioning of a company depends upon its relationship with the external parties involved.

Each user has a separate objective of analyzing financial statements.

MANAGEMENT: The company mgmt. plans its future goals and objectives by analyzing its current position with the help of those statements. The entire operations of the company depends on this analysis and planning procedures ahead.

INVESTORS: People invest in a growing or well-established company only. No one wants a loss, and thus avoid bad-performing enterprises. Investors study many aspects of a company's financial details, such as - profitability, growth rate, share price, price-earning ratio, solvency position, etc.

SUPPLIERS: Every businessman wants profit and stability. They tie hands with clients who can pay their debts on time without any much of a hindrance. Suppliers look for cash position, related policy matters, and the expectancy of payment.

There are many more users such as the government, various authorities, potential customers, etc.