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In the context of public company activities, stakeholders are those affected by the outcome negatively or positively and those who can affect the outcome of a proposed intervention. And in this case financial statement is regarded as "Report Card" of a company which details its performance for a specific time period. In most cases the time frame known as accounting period is usually one year. In this respect the stakeholders of Five Star sales and Services Company Limited are as follow:
Management: It is very difficult to describe the needs of management, as they are the ones responsible in deciding on the accounting policies as well as preparation of financial statement.
The management team would require details on the performance of the business as a whole to assess it's performance and to plan for future growth. Shareholders: Shareholders, the common stock holders in a company are regarded as investors. In general, ordinary shareholders take on all the risks associated with the company.
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“ She followed all my directions. It was really easy to contact her and respond very fast as well. ”
Their reward is paid in the form of dividend.
Their area of interest would be the profitability especially the company's future earning capacity, return on their investment and management efficiency. Lenders: Lenders such as banks, bondholders, preference shareholder and creditors to a certain extent are interested in the financial statements. In general, lenders rely on the financial statements to assess the company (borrower) operating and financial viability. The area of interest would be liquidity, net realisable value of assets, profitability and future growth.
Government: Government is also a stakeholder because the government is primarily the issuer and implementer of business guidelines and policies.
Companies are required to adhere to the guidelines. The area of interest would be the compliance issue pertaining to preparing of the financial statements. Employees: This group of stakeholder is interested in job security and in assessing their remuneration package. Their area of interest is likely to be the profitability of the company.
In summary, the most obvious need that virtually all stakeholders have in common, is the need for information about the business' past and future profitability, and also its financial risks. In order for stakeholders and other users to assess the financial performance of a firm effectively and consistently, the preparation of accounts must be based on certain accepted guidelines. Therefore, it is the management's responsibility to provide accurate and reliable information in their financial statements.
In this respect, the company's corporate governance, which deals with ethical issues, plays an integral part in the administration of accounting policies and preparation of financial statements. The ethical issues are as follows: Disclosure: The doctrine requires all accounting statements to be scrupulously honest. Full disclosure of all significant information, such as changes in accounting policy along with their respective financial implications should be made. This will enable users to be aware of significant relevant information of the financial statement.
Integrity: Integrity must be part of the company's culture. Every employee's right, from the board of directors to the lower level of employee should be subjected to the highest standard of honesty. In the case above, the managing director himself must establish the highest standards of integrity by example. Responsibility: It is the responsibility of the managing director to ensure that the company operates in an effective, ethical manner that produces long-term value for the company's shareholders. Accounting policies are an integral part in deciding the treatment of revenue and expenses.
This particularly is important in preparing the financial statement. One of such area would be the accruals and deferrals of revenues and expenses. Accrual is defined as recognition of revenue prior to receipt of payment and expenses that incurred and has yet to receive bill. In the case of deferrals, the company is delaying recognition of revenues and expenses. Nevertheless, for each of these a journal entry is required to record the transactions and it is known as "Adjusting Entry". Nest, the financial controller, can accrue revenues and defer expenses and still be ethical under the following circumstances:
The fundamental issue that arose from the Xerox case was the revenue recognition concept. It was established in the case that revenues should not be recognised until realised and earned. Therefore based on the above concept, Nest can accrue revenues for works which was completed within the accounting period and has yet to bill the clients. He can also accrue revenue in the form of interest earned from placement of deposits with financial institutions. It can be applied in the event the interest payments due date crosses over into the next accounting period.
Nest can accrue interest earned up to the end of the financial year. As in the case of expenses, Nest can defer expenses that are meant for the following financial year. This type of payments is usually termed as prepaid expenses. Some of the expenses that can be deferred are insurance premium and business licence where the payments period of coverage or licence expiry dates falls in the next accounting year. Under these circumstances, the payments should be prorated and the portion meant for the next accounting year can be deferred to the following year.
The profitability of the company. (2020, Jun 02). Retrieved from https://studymoose.com/the-profitability-of-the-company-13089-new-essay
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