Page 100 - DCOM409_CONTEMPORARY_ACCOUNTING

Unit 8: Corporate Reporting

nature or representation as to be useless or potentially misleading. For example, if an Notes
entity takes legal action against another entity for damages, and the validity and amount
of the claim involved are seriously disputed, it would normally be inappropriate for the
plaintiff to recognize prior to judgment an asset for the face value of the claim.
5. Understandability: The ability of users to understand financial information will depend
in part on their own capabilities and in part on the way in which the information has
displayed. General purpose financial reports ought to be constructed having regard to the
interests of users who are prepared to exercise diligence in reviewing those reports and
who possess the proficiency necessary to comprehend the significance of contemporary
accounting practices.

Self Assessment

State true or false:
1. Materiality test means that quality of financial information which exists when users of
that information are able to comprehend its meaning.
2. Reliability means that quality of financial information which exists when that information
can be depended upon to represent faithfully, and without bias or undue error, the
transactions or events that either it purports to represent or could reasonably be expected
to represent.

8.2 Users Group and Financial Reporting

Each business is required to maintain a set of financial statements for its operations. The benefits
may not seem to be many from an individual perspective; from the standpoint of a potential
investor, such statements may deliver what may be called an opportunity to enhance funding.
Some believe that accounting, also called bookkeeping, is non-essential and tend to concentrate
on generating sales and getting the best bargain from suppliers. Making journal entries and
maintaining ledgers and books of accounts are not the only functions of an accountant or
bookkeeper. It includes proper management of all relevant documents, such as invoices, purchases
and sales orders, agreements, and tax returns etc., which assist in developing an impressive set
of financial statements.
Investors

Investors fall into two categories, existing and potential. Some seek a takeover, leading to majority
control and shareholding. This usually occurs when a company is losing public confidence resulting
in low market value. Often considered as hostile takeovers, the investors tend to restructure the
business and control it completely, issue shares or sell it off in the open market.
The other category consists of short and long-term investors, both interested in increasing their
wealth with the minimal effort. This may be through either earning dividends or trading shares
in the Stock Exchange.

Lenders

These may supply funds to the organization on short and/or long-term basis. There are several
financial institutions and individuals willing to lend to progressive companies but few to support
those with lower earnings levels. The loan carries a charge of interest payable annually or as
agreed, on the principle or compounded principle, over the period that the loan has been issued.

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