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"The Importance of Financial Statements" Public companies are required to publish annual financial statements. Suggest the...

Question:

"The Importance of Financial Statements"

  • Public companies are required to publish annual financial statements. Suggest the major benefits of companies making financial statement information available to employees. As an employee, discuss what financial information would be of value to you. Provide at least two (2) specific examples on why the information is important.
  • Briefly explain generally accepted accounting principles (GAAP), and describe why it is important that public companies follow GAAP when preparing financial statements. Also, give your opinion on whether private companies should be required to follow GAAP. Provide a rationale for your opinion.

Answers

Importance of Financial Statement's information to Employees:

If Employees use Statement of Financials,they can assess the company's profitability and its consequences on their future remuneration & job security. By this assessment employees can also support in growth of the company.  

GAAP: Generally Accepted Accounting Principles refer to a common set of accounting principles, standards & procedures. Globally Financial Accounting Standard Board (FASB) generally issue these standards, principles & procedures. As these are set by Policy Boards so it becomes a kind of authoritative standards. The basic objective of issuance of GAAP is to improve clarity comparability, consistency and communication of financial information.

These standards ease interpretation of financial information to its users like investors, financial institutions, banks, government and general public.

Although it is recommended to public companies but it is advisable to be used by private companies, also. As they can reap benefits of improved clarity comparability, consistency and communication of financial information. The use of this will help in case of borrowings from financial institutions or banks and also improve confidence of users of financial statements.

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