Financial Accounting Corporate Report 1975

INTRODUCTION

In 1975 the Corporate Report was published, this was the outcome from the Accounting Standards Steering Committee's wide ranging discussion paper and in part considered the usefulness of financial statements

(Dunn, April 2002) discusses that to meet their basic objective financial statements must be useful; and the information relevant and reliable. Information will have relevance if it influences the decisions of the users. Relevance and reliability are primary characteristics relating to content together with the threshold quality,materiality. The primary characteristics relating to presentation include comparability, clarity and understandability.

The Corporate Report in 1975 identified the major user groups listed below

* Equity Investors

* Lenders

* Employees

* The Analyst Advisor Group (financial analysts, journalists, economist's statisticians, researchers, trade unions, credit rating agencies and stockbrokers)

* The Business Contact Group (suppliers, customers & competitors)

* Government

* Public

The Users Of Financial Statements

Equity Investors can be

* Existing investors

* Potential Investors

Both existing & potential investors can be long-term or short-term investors with a sole purpose of increasing their wealth by way of capital gains (Via trading of shares/securities) or by earning dividends

Lender/Creditors often referred to as the loan creditor group are people who supply funds to the company either on a

* Short term basis

* Medium term OR

* Long term Basis.

On short term basis the loan can be overdraft facility for a company but long term basis include heavy loans secured for future expansion or capital expenditures. The loan creditor group normally includes banks & discount houses which usually provides overdraft and other flexible fund management facilities to corporations, provided they have a sound financial performance backing.

Employees This group is considered to be the least affected of all when it comes to analyzing the company's accounts but they are the first to get a feel of an impact of changing circumstances in form of promotions, demotions or lay-offs.

The Analyst Advisor Group This group includes financial analysts, journalists, economist's statisticians, researchers, trade unions, credit rating agencies and stockbrokers

The Business Contact Group

It consists of

* Suppliers

* Competitors

* Customers

Suppliers This group comprises the trade creditors who are Suppliers of products and services to the company. They provide goods or services on credit terms to the company.

Competitors can be

* Existing OR

* Potential (New Entrants)

This group is comprised of rivals or operators other than the company in the industry offering similar products or services offered by the company.

Customers They refer to the end-user of goods or services produced by the company.

Government This group consists of regulators which deals or monitors that whether the company has met or fulfilled the statutory requirements as prescribed by law or not and to take necessary actions in case of breach of statutory requirements.

Public The public includes taxpayers, departments & agencies concerned with the supervision of commerce & industry and local authorities

The user needs and usefulness from the Financial Statements

The different users mentioned above have different needs which they try to seek to fulfil from the information therein contained in the financial statements of the company.

The different needs for different are discussed as under:

THE EQUITY INVESTOR GROUP This group (existing & potential) particularly seeks information to decide whether to invest or disinvest their funds from or to the company.

This group needs information for the future to undergo future equity deals and the financial information is historical thus their requirements are not fulfilled

This group can only make future projections or estimates about future earnings and dividends based on the information which is historical.

THE LOAN CREDITOR GROUP The primary objective is to evaluate the company's ability to meet its obligations with respect to current or future debts.

They consider the following information for their use.

* NRV (Net realisable value of company's assets)

* Cash position of the company/business

* Future cash positions (Projected cash flows)

* Financial Viability of the company in future

The above mentioned information again can only be estimated by the group and does not give the creditor a clear foresight of the actual position the company will be in future.

EMPLOYEES This type of group requires information on the performance of the company for:

* wage and salary negotiation;

* Assessment of economic stability and future viability of the business.

In addition to the above they may require information which is

1. non-financial

2. non-technical (less jargon)

3. detailed information for a particular department/function or a geographical level (regional level)

The information thus provided in the financial statements is not of much relevance to the employees as they have other needs which are not fulfilled by the existing reporting format.

THE ANALYST ADVISOR GROUP

This