|
留学作业网专业指导金融学作业与会计学课程作业。NAPIER 1 BASICS OF FINANCIAL DEPORTING
3 the change in what they have got
4 what they may get in the future.
You may have done quite a lor of 'accounting' already. In many cases, this willhave consisted largely ol technical manipulation - writing up ledger accounts, preparingprofit and loss accounts and balance sheets and so on. Much of the emphasisis likely to have been on 'doing things with numbers'. Given a figure to srart with,you can probably record it in a proper double-entry manner and see its effect
through onto a balance sheet that actually balances.But this is only part of the story. Suppose you are not 'given a figure1. Supposeyou are given, or have available, a whole variety of figures all related to a particularitem or transaction. Which figure or figures should you actuallyput into the doubleentrysystem? More fundamentally, how are you going to decide which ones to putin? In very general terms, we can answer this question by going back to our originalsimple definition of accounting. Namely, that it concerns the provision of figures topeople about their resources. Presumably, therefore, the figures that we as accountantsshould provide to people are the figures that they need to know for their ownparticular purpose.
So the key question is: What do people want to know about their resources? Whatuse do they wish to make of the figures we as accountants provide? Once we haveanswered this question, we can go on to say that the figure we should put into ourdouble-entry system is the one l i k e l y to be most useful to the user of our accountingreports.
Accounting therefore needs:
• an effective and efficient data handling and recording system
« the a b i l i t y to use that system to provide something useful to somebody.
This book is essentially concerned with the second of these needs. We have to considerthree fundamental issues:
1 Who .ire the users of accounting statements?
2 What is the purpose for which each particular type of user requires theinformation?
3 Mow can we provide the user with the information best suited to their needs?However, we have also to remember that the accountant and the user have tliein-'.civcs to operate within, and under the control of, the community at large. There is,therefore, an element o! regulation that has to be taken into account.
USERS OF FINANCIAL REPORTS
As readers w i l l be aware, accounting can be divided into management accountingand f i n a n c i a l accounting. Very broadly, management accounting is designed for themanagement user, i.e. lor internal decision-making, and financial accounting isdesigned tor all other users. The theoretical distinction is that management, by definition,can obtain whatever information it needs from within the organisation,External users, however, have to rely on negotiation or regulation in order to obtaininformation. Financial reporting is only concerned with external users and so is thishook.#p#分页标题#e#
\ °*t*3rfNine user groups can be suggested for-financial reporjing, as follows: : '
1 The equity investor group, including existing andpotential shareholders ariri hnlrtoro ni ~.~~—-"-•-
fow, yuujj, inuuuing arid holders of convertiblesecurities, options or warrants.
2 The loan creditor group including existing andpotential holders of debentures and loan, stockand providers of short-term secured andunsecured Joans and finance,
3 The'employee group Including existing, potentialand .past employees. ••-.•
4 The analyst-adviser group, including financial: analysts and journalists, economists, statisticians,researchers,.trade unions, stockbrokers andother providers of advisory services; such as 'credit-rating agencies.
5 Suppliers and trade creditors, past, present andpotential.
.6 Customers, also past, present and potential!'
7 Competitors and business rivals.
8 The government, including tax authorities,departments and agencies concerned with thesupervision of commerce and industry and local
i^ .authorities. •M- 9 The public, including taxpayers, consumers andother Community and special interest groups,
such as political parties, consumer andenvironmental protection societies and regional
pressi.ire groups,
Taking each of these groups one at a time, considerfirst • Ihe sjirt of decisions that they are likely to wish tomake using accounting information and. second, Ihe implicationsfro-'Ti this as to what information they might need. -
Activity feedback . . ' • . . - . .
The equity investor group
Essential!/,., this group consists of existing and potentialshareholders. This group Is considering whether or not loinvest in a;ousiness: to buy shares or to buy more shares;or, alternatively, whether or not to disinvest, to sell sharesin the business. Equity investors look for one or a combinationof two things: income, a money return by way ofdividend, or capital gain, a money return by way ol sellingshares at more ttian their purchase price. It should beapparent lhat these two are closely related. Indeed, theonly difference is the timescale. However, the simple
theory Is made immensely more complex in practice bythe effects on share prices of other equity investors'expectations/
For example, share prices for a company -may risebecause higher dividends are expected to be announcedby the company. Alternatively they may rise because otherpeople believe dividends will increase. A btiys\someshares in expectation of 'good news'. This causes pricesto rise, B then buys some shares in expectation of theprice rise continuing. This causes Ida price to rise again -a self-fulfilling prophecy .- which .brings in'C-as a:buyerloo. The original hope of 'good news' is soon forgotten: If,however, at a later dale the news arrives and turns otil to
be bad, everyone involved. A, 8 and C, may want to''selland the price will come crashing down. " , ( ' . ' :; i-#p#分页标题#e#
The motivational : and psychological 'a'rgufnentsinvolved here are well .beyond the scope of this book. It •is the Information requirements that concern us;-lf thejnvestoris taking a short-term view then eurrenhdivideridsmay be a major factor. As the llrne horizon of .our inves-
'V lor lengthens then future dividends become more impor-" ** tanl and future dividends are affected Crucially by
present and future earnings. The focus then is on profits,
which both determine lulure dividends and influence
the share price. •• ••. ./ •One'obvious point is that investors, bdlh existing and
potential, need information about future profits, The emphasisin published accounting information1.Is, almostwholly on past or more or less present profits, These rilayor may hot be a good guide to the future, Trie-need .tomake the past results usefuMor estimating (guessing)the future is an important influence oh soine of ihedetailed disclosure requirements we shall explore:.later.
The generaltrend is to make reported accounting state- •merits as. suitable as possible for the investor to make
Iheir own estimations. We should note an alternative possibility,however. This is that the company itself -'through ,'.either Ihe management or possibly through the auditors -should make a forec'asl. After all, the management and
the auditor, have a much greater Insight .into possibilitiesand risks than Ihe external shareholder:' ' •
The loan creditor group
This group consists ot long-, medium- or short-term lendersof money. The crucial question an existing or potentialloan creditor wishes to consider is obvious: Will lie orshe get their money back? A short-http://www.ukassignment.org/liuxuezuoyedaixie/daixiehelanzuoye/term loan creditor willprimarily be Interested, therefore, in Ihe amount of cash abusiness has got or will very soon gel. As a safeguard,they will also be interested in the net realisable value
(NRV) of all the assets and the priority of the various6 , CHAPTER! 8ASICS OF FINANCIAL REPORTING
ACTIVITY 1.1 (Continued)
• claims, other thanilheir own, on the.-available resources;,
Longer-lerm lenders will clearly .need a correspondingly
longer-term view of the firm's future .cash position.
Their needs are thus similar to; the needs of -the -equityinvestor group--'they, need-to estimate the overall
strength,and position of the business some way Into thefuture.
The employee group
Employees or their representatives need financial information
about the business for two main reasons:
1 fair and open collective bargaining (i.e. wage
negotiations)
2 .assessment of present and future job security.In these respects they also need to be able to assess
.the economic stability and vulnerability of the businessintoIhefuture." '•'. :V- - , .'..- • • • . • ' • ' • • ' - , ;
The employees, actual or potential, will also have^additional requirements, however; ;#p#分页标题#e#
1 They will often need detailed information at 'local'level, i.e. about one particular part of the business1or one particular factory. : '".;' :
2 They will need information .in a clear and simplenon-technical way. , , ".
3 They will need other information that is inherently, non-financial. They will want to know, for instance,about management attitudes to staff involvement :: in decision-making, about 'conditions of .service'generally, promotion prospects arid sopn.Jt canthus be seen that the employee group may requireparticular statements for Its own use and that it ;may require information nbt.traditionally regardedas'financial'at all. !.:•• The analyst-adviser group
In one sense this is not a separate group, j l is a collectionof experts who advise other groups. Stockbrokers andinvestment analysts will advise shareholders, trade unionadvisers will advise employees, government statisticianswill advise Ihe government and so on. The needs of the
analyst-adviser group are obviously essentially the needsof the particular group they are advising. However, beingadvisers and presumably experts they will need moredetail and more sophistication in the information presentedto them.
Suppliers and trade creditors need similar informationto that required by short-term loan creditors. But they willalso need to form a longer-term impression of the business'sfuture. Regular suppliers are often dependent onthe.'continuation;:of-'the1 relationship. They-may-wish toconsider increasing .capacity specifically for one'particulapurchaser. They will Iherelore.need to'appraise the futureof their potential customers-both,in terms of financial viabilityarid in terms of sales volume and market share.Customers will'wish to assess the reliability of thebusiness both in the short-term sense (will I get my goodson time and in good condition?) and in:the long-term
sense (can! be sure of after-sales service and an effectiveguarantee?). Where long-term contracts are involved,the customer will need to be'particularly on his or herguard to ensure that the business appears able to completethe contract successfully..
;Competitors and .business, rivals will wish to increasetheir own effectiveness.and efficiency by finding out as
much as possible about the financial! technical and marketingstructure of the business. The: business itself will naturallynot.be keen for .this information, to become generallyavailable'within the Industry and it is generally recognised; that businesses have a reasonable right to keep the causes•'of their-own competitive advantage secret/ Competitorsmay also wish to consider a merger or an amalgamation ora straight takeover, bid. For this purpose .they need all thisinformation,plus the information required by the equity in-':' veslorgroup. They also need information about what they -the bidders'.-:could do with the business. In other words,they need to be able to form an opinion on both: '
• what the existing management is likely to achieve#p#分页标题#e#
• and what-new managemertl could achieve with
. different policies.
The government
Everybody is aware lhat governments require financial informationfor purposes of taxation:;This may be the mostobviously apparent.use by governments, bur it Is not necessarilythe most important. Governments also need infor-
. mation for decision-making purposes': Governments todaytake many decisions affecting particular lirms or particular
industries, .both in a control sense and in government's
capacity as purchaser or 'creditor. Also, governments
need information on which,to base their economic decisionsas regards the economy as a whole. This informationis likely to need to be very .detailed and to go well beyondthe normal historic Information included in the usual publishedaccounting reports. Again, there is an obvious needfor future-oriented information,
T h e public, ' . . . . .
Economic entities, i.e. businesses in the broadest andmost general sense, do not exist in isolation. They are
CHARACTERISTICS OF USEFUl INIOI
ACTIVITY 1.1 [(Continued)part of society at large and they react and interact with
society al every level. At the local level, there will beconcern at such things as employment, pollution and
health and safety. At the wider level, there may be interestin, for example, pollution and 'green' issues,
energy usage, affective use of subsidies, dealings withforeign governments 'and contributions to charflmoney or kind. Much of this information is non-fidBIndeed, some of It cannot be effectively maasHall. Whether it is accounting information is anlquestion. But it is certainly useful information mbusinesses.
Summary of user needs
Several general points emerge from the preceding discussion:
1 Many, although not all, of the information requirements are essentiallyforward looking.
2 Different users, with different purposes, may require different infbrmatiabout the same items. rmation
3 Different users will require (and he able to understand) different degrees ofcomplexity and depth.
4 Not nil the information required is likely to he included in financial accounts.
CHARACTERISTICS OF USEFUL INFORMATION I
Make-a list of the desirable attributes or-characteristics(such as relevance, for example) that financial informationshould have if it is likely to be useful. ••• ,
Activity feedback H
Seven general ideas occur to us, as follows. ,• •••;,
Relevance
This sounds obvious, but on reflection is difficult to define
and therefore to achieve. A report must give the user
what he or she, wants. As already indicated this presupposes
that we, Ihe accountants preparing the report,know:
1 who Ihe user is
2 what their purpose is
3 what information he'or she requires for thispurpose.
Clearly these requirements may change as timegoes by.Understandability
Different users will obviously have different levels of M#p#分页标题#e#
ity as regards understanding accounting informaMUnderstandability does not necessarily mean simpliol
• II means that the reports musl be geared lo Ihe abililiand'knowledge of the users concerned. Complex itnomic activities being reported lo an expert user (•well require extremely complicated reports. Sir™aspects being reported lo users with little or no hMground knowledge will need lo be very simple. The prjlems really arise when we have the task of reporlinfj •complex activities but to the non-expert user.
留学作业网专业指导金融学作业与会计学课程作业。Reliability
The user should be able to have a high degree of COMdence in the information presented to him or her, 1Hdoes not necessarily mean thai (he information lias ifllfactually correct, taut it should be as credible, as b«Hable, as possible. Preferably, it should be independ^Bverified, e.g. by an independent, qualified aurlllfl
|
