Question

Thread View Nest View Select User Discussion Post 3: Importance of Financial Statements to External Users Why are companies' financial statements useful to external users such as banks and governments? Respond to the question with supporting arguments. Then review two classmates' responses and comment on them as to whether you agree or disagreed with their posts and why. Your post should be exactly 150 words. Posted By: Ashford Ches Modified Date: 07/30/2020 12:19 PM Start Date: No Date Assigned End Date: No Date Assigned

Answer 1

A financial statement is a structured representation of historical financial information included related notes intended to show entity’s economic resources or obligation at a point of time or changes therein in accordance with financial reporting framework of that entity’s operational location.

External users are entities or individuals who do not participate in running or managing the business but are interested in the financial information of the entity.

These financial statements are useful to external user such as banks and governments as:

1. Banks would like to know if a business is capable of paying debts. Banks often assess the continuity of the entity as well as cash flows and profitability. They are also interested in the ability of a entity to pay borrowings and the corresponding interests when they become due and this can be easily assessed from financial statements of that entity.

2. Governing of the countries, i.e. 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 countries government would like to know how much the taxpayer makes to determine the tax due thereon.

Anyone outside the entity who do not participate in the day-to-day operations of the business and makes use of the entity’s financial information is considered an external user. This includes investors, creditors, banks, customers, media reporters, etc. They are interested in financial information about the entity for commercial as well as non-commercial purposes.