Importance of all companies publishing the financial reports and statement
Financial statements and reports give information on the company performance, financial position, and financial position changes, which a number of parties uses in making decisions. It is a requirement, for all companies to prepare all the four financial statements, which include statement of profit and loss, cash flow statement, an equity statement, and a balance sheet at the end of the accounting period.
Weichieh and Tsang (2015)by summarizing the work of many others claimed that one of the most significant aspects of the financial reports and statement publication is that it provides the investors with tools to comprehend the memory of the organization. Rumniak (2015) expressed a similar idea where he claimed that through revealing to the public what is happening in the organization, top management open door for public scrutiny. Organization memory entails the manner in which a firm applies different accounting tools in preparing accurate financial reports and statement and publishing them in a consistent and timely manner. According to the research conducted by Ramanna and Sletten (2014), organization lever involves a mission statement, long-term plans, the products and services of the firm, traditional and values and rank-and-file personnel.
As explained by Su and Si (2015), various users of financial information of a company delve into published reports and statements to comprehend the basic factors influencing the route of the firm to financial stability. Investors cut through the accounting reports to view the profitability trends so that they can be able to determine the potential effects of cash flow s on the liquidity of the corporate. According to the survey conducted by Sandell and Svensson (2016), it was revealed investors are also interested in knowing how top management navigates the economy difficulties. Further, they are interested in determining how department heads are articulating future profitability procedures.
Other users of financial information include management, shareholders, shareholders, financial institutions, employees, public, government, suppliers, and the customers. Apart from the management who can be able to access the information from within the company, for the others parties it has to be published. Lack of publishing this information will deny these parties a great opportunity to understand what is happening within the organization.
Publishing accurate and timely financial statements and reports in corporate setting has an occupational significance. Various personnel works together to help a firm through financially speaking, reveal its best image. According to the research conducted by Weichieh and Tsang (2015), along with financial reporting acting as an analytical dexterity, it is also a communication discipline which gives clarity of thought. Its main objective is to give an accurate message on the financial situation of the company in a clear, easy-to-understand approach. Inferring from Sandell and Svensson (2016), people who are involved in publishing the company’s financial report and statement range from financial accountants and managers to regulatory-affairs coordinators, cost controllers and investors-relations representatives.
Several studies suggest that publishing the financial statement and reports increases organization transparency. These statements and reports represent the true representation of the fair value of the organization because the auditors have checked them. The general public and other groups are able to view where the company has not performed as expected, for instance, if it has highly invested in unworthy projects. Further, because accountants and managers are aware that the information will be presented to the external parties they act professionally. They control their personal interest from conflicting with those of the shareholders.
Criticisms for the increased complexity of these financial reports and statements
Inferring from Perrotta (2013), financial reports are increasingly becoming lengthy and complex. Some researchers claimed that even some of the sophisticated readers are nowadays finding it hard to comprehend the accounting jargon as well as identify the significant disclosures in them. Tinkelman (2011) claimed that these reports do not have much in common regarding reporting the main financial messages and measures, which are significant to the stakeholders and entity.
Inferring from Tanyi and Smith (2015), over the years, financial statement have been highly criticized for being unclear and cluttered. Some of the people who prepare these statements are not adequately familiar with the standard. Manes et al. (2015) by summarizing the work of many others claimed that as regulatory bodies issue new standard as well as revising the existing one, they add incremental disclosures and notes instead of reconsidering relevant notes in their entirety. Further, both auditors and people responsible for preparing these statements and reports can be held guilty for making some assumptions.
In many cases when a disclosure is recognized to be necessary, the decision is not revisited. However, over time, non-essential material disclosure proliferates. Jindrichovska, Kubickova, and Kocmanova (2014) pointed that the executive of the companies focuses on accounts front half, and the statements are complicated by the application of reconciliations to convert data to financial indicators, which the accountants prefers to report. Traditional structures of financial report such as separation of accounting policies, judgments, notes and estimations, regularly lead to repetition.
Although people claim that the financial reports and statement are complex, this is not always the case. Some people already have an attitude that these statements are complex. Some end users believe that the financial report does not give an independent feedback, that is simple and clear. Others lack basic accounting, or they are ignorant, which are among the qualities, which make it difficult for them to understand.
There is a growing sense that through international and domestic regulators influence, financial statement and reports should evolve into communication documents instead of just compliance documents. A great number of firms are looking in de-cluttering their financial statement and reports, a move which is in consistent with regulators view in improving the relevance and clarity of financial reporting. The aim is to achieve a sharper, more relevant and simplified financial report that is easier to understand.
Identify types of shareholders and types of stakeholders
Types of stakeholders
Some people erroneously confuse the world shareholders and stakeholders. While shareholders are stakeholders, stakeholders are not shareholders. There are different types of shareholders and some have characteristics which are common in them. Though there are not all individuals, various stakeholders groups may have individual’s interests. Lorinc (2012) in his work defined stakeholder as any group, organization, entity, or person who has interest in another organization.
There are various types of stakeholders. Legal stakeholders involve individuals or entities with possessions of anything that is valuable such as documents, property or money- till the person who rightful owns the thing is found. For instance, in some states, there are unclaimed property departments where individual search for people they know or money they owed.
Murphy (2014) by summarizing the work of many others claimed that another type of stakeholders is individuals. This type entails of investors, consumers, residents, and shareholders. All the aforementioned parties have either non- monetary or monetary interests in an entity or organization. As explained by Casabona, and Coville (2014), from investment point of view, shareholders can be termed as monetary stakeholders in an organization because they buy stock of shares. Residents are stakeholders because they share a neighborhood association with the organization. Both shareholders and residents have a bilateral relationship since they have an interest in the progression of the entity and on the other hand, the entity is providing them with something valuable.
Project or community stakeholders entail resident group that awaits the arrival of new transit system in the city. Both group and individual residents look forward to reaping the benefits from complete projects. This includes benefits such as efficient transportation among others. According to the survey conducted by Sandell and Svensson (2016), these stakeholders are interested in matters, which comes to fruition via project planning, management, development, and implementation.
There are different stakeholders groups that exist within the corporate governance context. As mentioned by Weichieh and Tsang (2015), employees are interested in the organization to succeed because they have invested their time, energy, and talent to work for it. In return, they anticipate remuneration for their qualification and expertise. Another example of corporate investment shareholders is board of the directors. It is their expectation that the company will follow their leadership and direction. Clients or customers also have interest in activities of a corporation; they expect the organization to offer high-quality products and services.
Different types of shareholders
Shareholders involve individuals, groups, or organization who own shares in a company. Preferred stock shareholders do not have the rights to vote and their dividends are steady. They receive their divided before the common stock shareholders. However, even in bankruptcy events, they are paid before common stock shareholders. In situation where the company cannot afford to pay the entire dividend, preferred stock holders are paid partial divided while common stock holders are ignored.
Common stock holders are shareholders who own common stock. They have rights to vote in the board of director election, company goals and stocks splits. They are given dividend, although at times it fluctuates. Regarding dividend payment, they are second from the preferred stock holders.
Another type of shareholders is institutional investors who purchase large quantities of shares. Retailer investor’s also known as individual investors are shareholders who buy a few shares. While institutional investors can move the market, the same cannot be said for individual investors. For this reason ,they are treated differently with institutional investor given top priority.
Company most important stakeholders
Customers are the most important stakeholders in the company because without them it cannot exist. Then the employees who are charged with the responsibility of satisfying the customers need follow them. Third are the shareholders who are the company owners. They have invested their capital for the company to start. Distributors and suppliers follow them. Local community and the government are less important stakeholders.
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