Accounting – 7.2 Accounting policies | e-Consult
7.2 Accounting policies (1 questions)
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Financial statements are crucial for providing information that is relevant to a wide range of users. Relevance means the information in the statements can be used to make decisions.
- Investors: Need information about a company's profitability, solvency, and future prospects to decide whether to invest. They want to know if the company is likely to generate returns.
- Creditors (Banks): Require information on a company's ability to repay loans. They assess the company's financial stability and cash flow.
- Management: Use financial statements to monitor performance, make operational decisions, and plan for the future. They need to understand how different parts of the business are performing.
- Customers & Suppliers: May want to assess the long-term viability of a company they do business with.
- Tax Authorities: Use financial statements to verify tax liabilities.
If financial statements are not relevant (e.g., they don't show the true financial position or performance), users will not be able to make informed decisions. This can lead to poor investment choices, lending decisions, or business strategies.