Page 140 - DCOM409_CONTEMPORARY_ACCOUNTING

Unit 11: Introduction to Financial Reporting Framework

But even while it revised its outlook upwards, S&P said that key concerns continued to be Notes
reflected in ICICI’s ratings. This include a relatively higher risk business as it was
predominantly project financing, although this had been reduced significantly in recent
years; a high level of assets seen as impaired by global standards; wholesale funding
concentrations and the risks associated with the Indian operating environment.
S&P’s also commented on the company’s improved accounting systems as the company
passed provisions for non-performing assets through the profit and loss account, rather
than the capital account. ICICI has already audited its balance sheet according to US GAAP
accounting principles.

Regulators

The basic requirement of the regulators is to ensure that the company is working in accordance

with the law and is not cheating the general public which is dependent on the company for
various reasons. Regulators often have legal authority or significant influence over the activities
of organisations. As the government exercises control over regulators, they can ask for special
formats of reports that the company has to provide. The income tax authorities require
organisations to use various reports for computing taxes. Registrar of Companies (RoC) requires
list of top shareholders along with the annual report. Securities & Exchange Board of India (SEBI)
and the Stock Exchanges (like National Stock Exchange and the Bombay Stock Exchange) require
that the listed companies (companies which have wide public holding and whose shares are
traded on the stock exchange) make adequate financial disclosures in order to make sure that
investor gets sufficient information to make informed investment decisions.

Suppliers and Customers

In many cases, suppliers and customers are interested in the long-term staying power of the
company. If you were going to put up a project that supplies its product to only one customer,
you would be interested in knowing whether that customer can last for a long time. Similarly,
if you were the customer you would be interested in the long-term viability of the supplier.

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Caution Financial statements help you in understanding the other party’s financial position.

Employees

Employees have a special interest in the company. They are interested in judging whether the
salaries/wages paid to them are fair and also in assessing their future job prospects. They are
also interested to know that if the company is doing well so that they can bargain for better
wages or working conditions. External reports of other companies can also be used to look at the
salaries paid by other competing organisations to look for better job prospects.

11.2.2 Internal Users of Accounting Information

Internal users are the individuals who are directly involved in managing and operating the
organisation. Therefore, the internal role of accounting is to provide information to help improve
the efficiency and effectiveness of their organisation in delivering products or services.
Management accounting provides internal reports to help internal users improve an organisation’s
activities. Internal reports are not subject to the same rules as external reports because internal
users are not constrained in the use of accounting information. They have access to a lot of

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