Financial Reporting

Published on July 2016 | Categories: Documents | Downloads: 50 | Comments: 0 | Views: 426
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Financial reporting

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Financial reporting
Financial reporting plays a vital role in world economies. Its primary purpose is to provide relevant and useful
information to the owners of a company where there is a division between the ownership and control of that company.
This occurs mainly in public limited companies, where share capital is sold to the public through a stock
market/exchange system. The diverse and potentially geographically dispersed shareholders do not get involved in
the management of their company; they appoint directors to do this on their behalf. The owners receive an annual
statement summarising the performance and position of their company so that they can assess how well their
investment has performed during the reporting period.
Without this reporting system investors would be less inclined to part with their capital as they would have no way of
monitoring how effectively the company is being run by the directors, the appointed stewards of the company who are
supposed to be operating in the best interests of the shareholders.
In order to meet the needs of the users of the financial statements companies have to implement accountingsystems
that provide the information needed. It is also important that this system is regulated to ensure that the information
provided to the users is in an appropriate format and that it is useful to their informational requirements. This is
achieved through a financial reporting framework, the basis of which is a conceptual framework.

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