Importance Of Financial Information To Stakeholders Accounting Essay

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Financial information contain in annual reports that the companies are published in periodically. That period is identified as reporting period. Company obligates to provide financial information to their various stakeholders during the past reporting period.

Annual report is a report the company report their comprehensive transactions and events to publish and provide for required parties. There are few reasons to publish annual reports by companies generally as follows.

Because companies have legal obligation between companies and the government act implemented for companies is known as company act 2007 No 7. The company act's section 150, 151, 152 and 153 has mention the obligation to prepare financial statements, content and form of financial statements, obligation to prepare group financial statements and content and form of group financial statements accordingly.

Stakeholders of the company require the financial information for following reasons.

To know how well the company is doing.

To find company has earned more money than they spent.

To get an idea about strategic and tactical plans of the management.

To provide information to make decisions who make decisions about organisatoin.

Avoid dissimulations and corruptions of the organisation.

Through the audit process, organisation will be able to identify weaknesses of their control of procedures and corruptions occurred due to them.

To obtain and fulfill the financial requirements from monitory markets via financial equipments such as shares, debentures, bank loans and etc.

1.1. Importance of Financial Information to Stakeholders

However the financial information require by stakeholders of the organisation. Stakeholder of the organisation can divide into two. The bellow chart represents the stakeholders of the organisation according to the environment they belongs to.

Stakeholders of the Organisation

External stakeholders

a). Suppliers and Trade creditors

b). Government

c). Consumers

d). Public

e). Medias

Internal Stakeholders

a).Directors & Managers

b). Shareholders

c). Employees

(Diagram 01)

Above chart shows the deviation of stakeholders of the organisation and they require financial information due to various purposes.

1.1.1. Directors and Managers

To make decisions about the organisation in different time and in different level. Directors and managers of the organisation are taking different types of decisions as follows.

About new investment and project appreciation decision.

About continued and discontinued operations.

Dividend decisions.

Diversified business decision.

Winding up decision.

To establish overall objectives and periodical targets.

To avoid dissimulations and corruptions.

To establish squired systems and strengthens control of procedures.

To increase the productivity level of the organisation.

1.1.2. Shareholders

To determine whether their investment will be sold, Holt or bought more shares of the organization.

To decided the fairness of the returned for their investments.

To determine the going concern of the organisation.

To obtain wide knowledge about the organizational activities.

To compare their investments and their benefits with other competitive organizations and industries.

1.1.3. Employees

To know about the stability and profitability of the employer.

To know about remuneration, retirement benefits, and employment opportunities are in organisation

To ensure the job security with the current employer.

To ensure the fairness of the salaries and wages they obtain from the organization according to their earnings.

To have a clear view about other operations of the organisation.

1.1.4. Suppliers

To ensure their payments of supplies will be received on due.

To ensure the stability of their customers.

To have knowledge about other products and their suppliers of the organisation.

To compare their transaction with existing and other companies

To find other competitive suppliers and their contribution towards the organisation.

To find opportunities to supply more.

1.1.5. Government

To collect accurate taxes and amounts from organizations on due dates.

To provide government benefaction to improve their business.

To obtain financial and non-financial assistance for government development projects.

To ensure the organizations oversee their employees in reasonable way.

To ensure the organizations compliance with government rules, regulations and acts that established by the government.

1.1.6. Consumers

To have knowledge about the cost structure of the products that the organisation is producing.

To ensure the stability of the organisation.

To know about the organization's profitability, because profitability is a shed light to know about products impossible growth, improvements, best customer service and low price strategic implications.

To know about CSR programs conducted by the organisation.

1.1.7. Public

To conscious about organization's substantial contribution towards the society.

To know about the opportunities to link with the organisation.

To know about CSR contribution towards the country.

To conscious their activities which can be affected to interest of the nature and the country.

2. Standards requirement for published Financial Statements

The entire organizations specially registered in Sri Lanka need to prepare their financial statements according to the requirements of the accounting standard issued by the Institute of Chartered Accountants of Sri Lanka (ICASL). ICASL is responsible for prepare and issue all accounting standard which are relative and necessary to prepare financial statements.

The entire organizations need to be adopted and compliance with the accounting standard which issued by the ICASL and need to mentioned under the notes to the financial statements of their annual report. This note can identify as Note of Compliance. As an example Richard Pearis PLC has mentioned their note of compliance as follows.

"The Financial Statements of the Company and the Group, comprising the Balance Sheet, Income Statement, Statement of Changes in Equity, the Cash Flow Statement, Accounting Policies and Notes to the Financial Statements are prepared on the basis of the historical cost conventions, and in conformity with Generally Accepted Accounting Principles and Accounting Standards laid down by the Institute of Chartered Accountants of Sri Lanka. These principles and standards have been applied consistently with that of the previous year. No adjustments are made for inflationary factors affecting these Financial Statements."

There is a list of accounting standards. It's consisting with 28 LKASs and 8 SLFRSs. (See appendix 01).

2.1. LKAS 8: - Accounting Policies, Changes in Accounting Estimates and Errors.

As per the requirement of LKAS 8 all of the companies need to mention their accounting policies estimates that they have used to prepare their financial statements during the reporting period. Because due to the change of any policy of the company will be affected retrospectively and caused to restated of comparative information unless it is impracticable to do so. Appendix 02 represents significant accounting policies and estimates that use by Richard Pearis PLC.

2.2. SLFRS 8: - Operating Segments

As per the above standard company may have some operating segments. Operating segment can define as follows;

Operating segment is a component of an entity,

It may earns revenue and incur expenses to the organisation,

Operating results are revived by board of directors and

Discrete financial information is available.

Bellow table shows the segmental operations of Richard Pearis PLC.

(Table 01) (Richard Pearis PLC, (2012). 'Financial Statements' In: (ed), Arpico Annual Report. 2012: Sri Lanka pp.41.)

2.3. LKAS 34: - Interim Financial Reporting.

LKAS 34 requires preparing interim financial reports due to timely and reliable interim financial reporting improves the ability of investors, creditors, and other to understand an enterprise's capacity to generate earnings and cash flows and its financial conditions and liquidity. Richard Pearis PLC prepares their interim financial reports according to the following financial colander.

Financial Calendar

2011/2012

2010/11

Interim Reports:

 

 

Quarter ended 30th June

12th August 2011

30th July 2010

Quarter ended 30th September

14th November 2011

3rd November 2010

Quarter ended 31th December

15th February 2012

8th February 2011

Annual Report:

24th May 2012

27th May 2011

(Table 02) (Richard Pearis PLC, (2012). 'Financial Statements' In: (ed), Arpico Annual Report. 2012: Sri Lanka pp.27.)

2.4. SLFRS 4: - Insurance Contracts

This standard is applied virtually all insurance contracts that an entity issues and to reinsurance contracts that it hold. This is not applied to other assets and liabilities such as covering under the scope of LKAS 39 financial instruments recognition and measurement. Therefore company need to disclosure following information as requirement of this standard.

Accounting policies for insurance contracts and related assets, liabilities, income and expenses.

The recognized assets, liabilities, income, expenses and cash flows arising from insurance contracts.

If the insurer is a cedant, certain additional disclosures are required.

Information about assumptions that have the greatest effect on the measurement of assets, liabilities, income and expenses including, if practicable, quantified disclosures of those assumptions.

The effect of changes of assumptions.

Reconciliations of changes in insurance liabilities, reinsurance assets and if any related deferred acquisition cost.

2.5. SLFRS 6: - Exploration for and Evaluation of Mineral Resources

Under this standard affected activities such as;

The search for mineral ,

Determination of the technical feasibility and commercial viability of extracting those resources.

Following are specially excluded from the scope of the SLFRS 6;

Expenditures incurred before the entity has obtained legal rights to explore in a specific area and

Expenditure incurred after the technical feasibility and commercial viability of extracting a mineral resource are demonstrable.

The accounting policy that entity can apply for mineral resources are;

All expenditures related to exploration and evaluation assets need to incur to profit and loss and first recognition of the asset required to measure at cost, subsequently whether cost or revaluation model.

Exploration and evaluation assets need represent in balance sheet, if its satisfy LKAS 16 requirements under property plants and equipments or if its satisfy LKAS 38 requirements under intangible assets.

2.6. LKAS 16: - Property Plant and Equipments

Property, Plants and Equipments (PPE) are tangible items that;

Are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes and

Are expected to be use during more than one accounting period.

(Mapitiya, (2011). 'Definitions of Standard' In: Gayan (ed), LKAS 16 Property plant and Equipment. 1st ed. 2011: Sri Lanka pp.4.)

The cost of assets of an item of PPE shall be recognized as assets if and only if;

It is probable that future economic benefits generate with the item will flow to the entity.

The cost of the item can be measured reliably.

All property, plant and equipments require to represent in balance sheet under non-current assets and need to be valued whether cost or revaluation model.

Every property, plant and equipment need depreciate. Depreciation can define as systematic allocation of the depreciable amount of an asset over its useful life.

Depreciable Amount = Cost-Residual Value

Useful life of the asset is the period the entity is expected to use. It will be vary from each and every asset. Company can use different types of depreciation methods that mentioned in the standard. They are;

Straight line method.

Reducing Balance method.

Units of production method.

Bellow tables show the property, plant and equipments, their useful life and depreciation amounts.

NOTE 12 - PROPERTY, PLANT AND EQUIPMENT

12.1

Consolidated

 

Cost

Balance as at 1-4-2012

Additions

Balance as at 31-3-2012

 

 

Rs.'000

Rs.'000

Rs.'000

 

Freehold Land and Buildings

57,668

3,018

60,686

 

Building on Leasehold Land

103,888

1,617

105,505

 

Plant and Machinery, Electrical Equipment

692,424

26,328

718,752

 

Tools and Office Equipment

20,999

422

21,421

 

Furniture and Fittings

5,145

-

5,145

 

Motor Vehicles

12,525

-

12,525

 

Computers

13,446

352

13,798

 

Roads and Other Infrastructure

6,930

-

6,930

 

Tube Well

180

-

180

 

 

913,205

31,737

944,942

(Table 03) ((Richard Pearis PLC, (2012). 'Financial Statements' In: (ed), Arpico Annual Report. 2012: Sri Lanka pp.45.)

Depreciation and Impairment

Balance as at 1-4-2012

Charge for the year

Charge for the year

Balance as at 31-3-2012

 

Rs.'000

Rs.'000

Rs.'000

Rs.'000

Freehold Land and Buildings

39,095

1,354

-

40,449

Building on Leasehold Land

26,191

5,248

-

31,439

Plant and Machinery, Electrical Equipment

543,934

32,540

93

576,567

Tools and Office Equipment

20,025

752

-

20,777

Furniture and Fittings

5,116

23

-

5,139

Motor Vehicles

12,525

-

-

12,525

Computers

12,934

278

-

13,212

Roads and Other Infrastructure

3,951

347

-

4,298

Tube Well

180

-

-

180

 

663,951

40,542

93

704,586

Net Book Value

249,254

 

 

240,356

(Table 04) (Richard Pearis PLC, (2012). 'Financial Statements' In: (ed), Arpico Annual Report. 2012: Sri Lanka pp.45.)

Building on Leasehold Land

Over the period of lease

Building on Freehold Land

Over 20 Years

Plant & Machinery, Electrical Equipment

Over 10 Years

Furniture & Fittings

Over 04 - 05 Years

Tools & Office Equipment

Over 04 - 05 Years

Motor Vehicles

Over 04 - 05 Years

Computers

Over 03 - 05 Years

Roads and Other Infrastructure

Over 20 Years

Tube Well

Over 10 Years

(Table 05) (Richard Pearis PLC, (2012). 'Financial Statements' In: (ed), Arpico Annual Report. 2012: Sri Lanka pp.36.)

2.7. LKAS 38: - Intangible Assets

Intangible Assets are that identifiable non-monitory assets without any physical substance.

(Jayasigha, (2011). 'Intangibla Assets' In: Dimuthu (ed), LKAS 38. 1st ed. 2011: Sri Lanka pp.2.)

There are three critical features of intangible assets. They are

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