Examining seven user groups related to financial statements

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The Framework for the Preparation and Presentation of Financial Statements identified seven user groups: Investor, employees, lenders, suppliers and other trade creditors, customers, government and the public.

For each of the seven different user groups, explain their presumed interest with reference to the performance of the company and its financial position.


A company's performance and its financial position can provide information for an investor to determine whether it is worth to invest. It will help investors such as shareholders, partners or institutional investors to do appropriate decision enter existing ones or potential ones. The potential investors want to know whether or not to invest their money in the business and the current investors will be interested in their returns on investment.


The performance of the company and its financial position will be used by employees for making collective bargaining agreements. It can provide users discussing matters of promotion, rankings and salary hike because employees can realize the condition of the company through the company's performance and its financial position.


Lenders can make decisions about whether they should lend money to the companies by referencing the companies' performances and their financial positions. Through the information, lenders can make sure whether the companies have ability to return the debts on time if they lend money to the companies. For example, the lender can look at a company's previous records of debt repayment or recovery and then define if the company is reliable.


Suppliers will concern with whether the company is reliable to supply it on credit and they may be willing to deal with the company as going concern.

Other trade creditors:

Other trade creditors will need the information that helps them to decide whether to assess the likelihood that amounts owing to them will be paid when due.


Customers are also concern with whether the company is a going concern as far as warranties or guarantees are concerned. The company's performance and its financial position can let consumers know whether it is save to purchase the product of the company or invest in a commercial bank or investment firm.


Government not only includes all government but also includes the state agencies like the Central Bank. The financial statements will be used to ensure compliance, especially with the representation of the financial position of the company and accounting standards. The information will be used by the government to do the national statistics like Gross Domestic Product.


Even though it is impossible that all the public will be interested in or understand the financial position of a company, the "public" only refers to the rest of the society. The performance of companies will affect society and the environment, therefore, the public including lobby group assess the entity as a corporate citizen.

Information contained in a statement of comprehensive income and a statement of financial position prepared under accrual accounting concepts is factual and objective. What is your opinion on this?


For my part, I think the information appeared in the statement of comprehensive income and the statement of financial position according to the accrual accounting concepts is factual and objective.

Under the accrual accounting concept, although the transactions are recorded when the transactions are occurred but not when the actual money was paid or received, it still presents the real and objective information because that the profit for the accounting year is calculated by considering the items of accruals and prepayment. For example, company A borrowed money amount of $100,000 from bank and it was charged as a long-term liability. Company A are supposed to pay the bank 8% interest ($8,000) and installment ($20,000) every year. Assuming company A didn't make profit for this accounting year, thus it has no ability to pay the loan for this accounting year. Even though it didn't pay the interest and installment which is amount of $28,000, the interest and installment ($28,000) will be recorded in the statement of comprehensive income for this accounting year. Besides that, there will be an accrued recorded under the current liability in the statement of financial position for this accounting year. Therefore, the profit for this accounting year will be calculated factual and objective under the accrual accounting concept, otherwise the profit for this accounting year in this circumstance may be recorded as a higher value which is not accurate and actual.

In conclusion, I strongly believe that information contained in a statement of comprehensive income and a statement of financial position prepared under accrual accounting concepts is factual and objective.

Though facing heavy criticisms, historical cost convention is still being used for its validity. Assess whether in your opinion, this practice should be continued?


In my opinion, the historical cost convention should be used continually. Due to the validity of historical cost convention, the value of goods calculated based on it can get the maximum acceptation of traders because the historical costs of goods prove what the real values of the goods were without any doubt.

Although the historical coast convention is faced heavy criticism, it is still the most useful method to offer the equity and reasonable between the traders. While a transaction is occurring, the seller gives a current selling price for a particular second-hand good, the potential buyer may doubt whether the good is worth for the price made by the seller. Then the historical cost convention is used to prove the value of the good by presenting the purchasing price of the good. Thus, the potential buyer can make his decision based on the purchasing price offered by seller. Finally, both buyer and seller will believe they had a reasonable transaction. For instance, person A sells his second-hand car at the price of $18,000 which was bought for $200,000 4 years ago. Because the original cost is reliable and actual, person B does not need to search and collect information about the value of car, he can make decision based on the historical cost convention, considering whether this car is worth for $18,000 referring to its original cost ($200,000) and bargain with the seller.

As we see, the historical cost convention saves time of buyers on searching and verifying the real value about the goods they are willing to purchase. And it also provides equity and effectiveness for business transactions and the traders. To sum up, I suppose to practice the historical cost convention continuously.

Question 2

The International Accounting Standards Board would no longer pursue convergence with its US peer as "objective in itself", its oversight body said recently, in the latest sign of eroding consensus on accounting rules. The IASB, which set standards for most of the world outside the US, was nominated by the group of 20 leading nations to oversee the development of a single high- quality accounting standard by mid-2011, reports the Financial Times. In a mid-February report, the London- based newspaper said that this was widely assumed to include convergence of US and international standards with a view to US adoption of International Financial Reporting Standards, which are already used or due to be used by more than 110 countries. However, it said increasing politicization of the accounting process and tensions over sovereignty have made this harder to achieve, regulators and accountants say. In a review of its constitution published on February 15, the report said IASB's oversight board addressed this concern over the convergence project and said it would "emphasis that convergence is a strategy aimed at promoting and facilitating the adoption of IFRS, but it is not an objective by itself".

Take from "Accountants Today- March 2010".


Describe the accounting issue that is discussed in the above article.


The above article discusses about that the London based IASB will be separated with the US and it was nominated to oversee the development of a single high- quality accounting standard by mid-2011.

Explain the objectives of International Accounting Standards Board.


International Accounting Standards Board (IASB) was set up to take over the International Accounting Standards Committee (IASC) in the year of 2001and it was appointed by the IASC to set International Financial Reporting Standards currently.

Actually, IASB is an independent, London-based framework which aims for assisting the development of accounting standards by providing a set of agreed fundamental principles. IASB is privately-founded to develop and publish IFRSs (International Financial Reporting Standards-the new name for International Accounting Standards) and promoting the use of those standards in general purpose financial statements and other financial reporting. IASB not only assists the development of international standards but also assists national standard setters but also helps preparers of financial statements in applying standards and dealing with topics where no standard exists. Moreover, IASB aids auditors to make judgments on whether financial statements comply with international standards and supports users in interpreting financial statements. IASB also ensures the information needs of most users are met.

To conclude, the core objective of IASB framework is to facilitate the consistent and logical formulation of IFRS and to provide a basis for the use of judgment in resolving accounting issues.

What is the regulatory framework for financial reporting in the UK?


The regulatory framework financial reporting in the UK is based on the general accepted accounting practice which contains a number of different regulatory bodies including the Financial Reporting Council, the Company Law (mainly the Companies Act 1985), the Accounting Standards, other national standard setting bodies' influence and the Stock Exchange requirements. It also includes International Accounting Standards and Laws in other countries, particularly in USA.

The ASB have issued many new standards such as Financial Reporting Standards (FRSs) and some parts of ASB have replaced SSAPs and other parts have covered areas not covered by SSAPs. The work of ASB is based on a conceptual framework that is known as the Statement of Principles and it can issue a Financial Reporting Standard (FRS) without approval from any other body. To establish and improve standards of financial accounting and reporting to benefit users, preparers and auditors of financial accounting is the main aim for setting the ASB. Besides these, there is International Accounting Standards Board (IASB) which was set up to take over from International Accounting Standards Committee in 2001. In fact, the UK government allows companies follow either international standards or UK standards.

"The FRC is a company limited by guarantee that is financed in approximately equal proportion by its members, which comprise the government, City institutions (such as the London Stock Exchange, and the clearing banks)"-( Andrew Thomas, Introduction to Financial Accounting, 2006: 11). The FRC plays a vital role in standard setting in the UK. It has three main responsibilities which are to guide ASB on work programs, board policy matters and issues of public concern; to ensure that the standard setting bodies working properly with efficiency and effective; to act as a proactive representation in public debate and to oversee the government and the accountancy profession for improving the quality of relevant legislation and accounting practice. The Financial Reporting Review Panel is a subsidiary of the FRC and it is using for investigating complaints about any company's publish accounts where these contain an apparent material departure from an accounting standard and the Companies Act, including in particular the requirement to show 'a true and fair view'. The Companies Act 1985 consolidated most previous UK company legislation and subsequently amended by Companies Act 1989.

The Company Law is the rules that all the companies in UK must follow. Although the unincorporated UK businesses can prepare their financial statements in any form they choose, the companies must comply with the provision of the Company Act 1985, the SSAPs and the Financial Reporting Standards.

In fact, the regulatory framework of UK appeared around 1970s, six major professional accounting bodies of UK set up the Accounting Standards Committee to issue standards known as SSAPs ."The Financial Reporting Council was set up in 1990 as an independent regulator to set and enforce accounting standards. It operated through the ASB and the FRRP to encourage high-quality financial reporting."(Barry Elliott and Jamie Elliott, Financial Accounting and Reporting, 2006: 105) These accounting standards apply to all financial statements whose purpose is to give a "true and fair view" and the concept of fairness is also included in International Accounting Standards. Therefore, they apply to all UK companies' financial statements.

To summarize, the regulatory framework for financial reporting is 'a general term used to describe the legislation and other rules that govern the content and format of company final accounts.' - (Andrew Thomas, Introduction to Financial Accounting, 2006)

In your opinion, do you think the convergence of accounting standards is considered to be relevant? Justify your answer.


For my part, I think the convergence of accounting standards should be considered to be relevant to this article. As the opinion I presented in my answer for question 1, this article described the current state about the convergence of accounting standards.

The article pointed that "the International Accounting Standards Board would no longer pursue convergence" and "IASB's oversight board addressed this concern over the convergence project". It shows the reason why the convergence will be cancelled and the expected consequences after cancelling convergence. The article says that convergence is not an objective but it is a strategy aimed at promoting and facilitating the adoption of IFRS. This information is appeared in the article proving that this article discusses about the issue that concern with the convergence of accounting standards.

To sum up, this article discusses the topic about the convergence of accounting standards.