Question

12-3 “Financial statements report on history. Therefore, they are not useful to creditors and investors who want to predict future returns and risk.” Do you agree? Explain.

Answer 1

Investors are widely dissatisfied with the usefulness of financial reporting information. This is reinforced by evidence that continually reflects the diminished ability of financial information and actual income to reflect enterprise performance, predict future work, and explain returns. Examiners have found that rather than giving information to stakeholders, many financial authorities believe that financial reporting has become increasingly difficult. Consequently they are well aware of the loss of relevance of the information. Investors also make different adjustments to financial information. And are searching for the most reliable and timely information for the purpose of evaluation. In the United States and other countries, regulators also provide information on the relevance of financial reporting.

Accounting is a method of clarifying a company's financial statements to estimate its future performance on a permanent basis. Globally, companies are required to file their financial statements with the relevant accounting officer by law.

From the investor the company through which the shares are purchased needs financial information to explain why the company operates in this way. Financial statements use explanations to decide what to invest in a company. And they will hold onto their stock or sell or buy it, depending on how the company is doing.

Creditors are interested in knowing if a company will honor them when their salary is paid. They have the power to clarify the cash flows of company accounting information and provide low-volume fixed payments to determine the liquidity of the company.