Do Financial Statements Tell the Truth?

Financial Statements are often used to evaluate the financial position of a company. Through the analysis investors can determine the profitability of a company and decide whether to fund money into that business. The financial statements are comprise of income statement, cash flow statement and balance sheet, each of these provides useful information of earning and expenses, of cash flows, and of assets and debts.

(Ohara, 2007) Most financial statements are made public for the benefit of stakeholders and potential investors. The bottom-line is that financial statements are the main source for analyzing how well a company is operating. The income (or profit and loss) statement is simply a report card of how much activity (revenue) was performed in the period, how profitable that activity was (gross profit/loss), and what it cost the contractor to run the business (overhead). (Murphy, 2006)

Understanding the finances of a company is important but knowing the significance of the financial statements is crucial to the operations as well. Reviewing the statement of financial position, operating statement and statement of cash flows serve as a guidance to management and executives on the day-to-day activities of an organization (Finkler et al., 2013). For example, the statement of financial position (balance sheet) shows the assets and

As stated in the AASB Framework, financial statements play an utmost important role to a variety of users, which mainly consist of the investors, employees, lenders, suppliers and other trade creditors, customers, governments and their agencies, as well as the public, in making vital financial decisions. For accounting information to be ‘decision useful' to this groups of people, the financial information

First of all, because this helps to prevent fraudulent practices. It makes easier for management, shareholders and potential investors to digest the information. It also allows comparing these statements against business competitors or the company’s own past statements to measure

This report is written as a response to the monograph in which the ICAEW published on how financial accounting disclosures can be improved. The aim of this report is to critically discuss and evaluate the worthwhileness of the recommendations made from a financial investor’s perspective. It is done by reviewing recommendations put forward by the ICAEW and analysing if each of the disclosure recommended is worth the effort while putting in perspective what effects these recommendations have on professional investors who are one of the primary users and consumers of financial statements. The report contains information mainly from the ICAEW report and the CFA institute report

The most important role of financial reports is to effectively communicate financial information to outsiders in a timely and credible manner (FASB, 1984). Earnings are vital in financial statements because earnings represent the company’s value. Investors and creditors always look to

The four primary financial statements found in annual reports include the income statement, balance sheet, statement of retained earnings and statement of cash flows. The data in each statement includes results from the most recent fiscal year-end, as well as historic data that stakeholders use in identifying trends from year to year. The financial statements include data required for stakeholders to calculate a variety of ratios and analysis which are critical in determining corporate levels of efficiency, profitability, liquidity, debt and sustainability. Since financial statements of public corporations are audited by independent firms, the financial data is typically accurate and generally reflects a standardized format following Generally Accepted Accounting Principles

Financial statements are imperative for organizations to keep track of the overall performance and value of the company over a period of time. Furthermore, the financial statements are necessary for creditors and investors to evaluate a company’s financial performance. There are four primary financial statements which focus of different areas of the financial aspects. There are balance sheets, income statements, statements of retained earnings, and statement of cash flows. Each of these statements is an essential measure for the financial activities within a company.

Financial accounting statements can help a user to make future decisions by showing the concerned business’s health. It shows where money is being generated, spent and lost, depicting the financial performance and financial position. The statements can also help in situations such as raising fresh capital in the form of a loan, e.g. a bank will most likely require these statements to show the business’s credibility or worthiness. The statements help influence managerial decisions on which direction the business needs to head, and how to best maximize profit.

The objective of financial statements is to provide information about the financial strength, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions ("The Framework for the Preparation and Presentation of Financial Statements").

The use of financial statements is to provide individuals, but not a specific group with compressed financial data showing them the information that pertains to the decision they want to make. They are also able to see past performance of their company and comparing corporation that is in the same industry (Edmonds, Tsay, & Olds, 2011).

Financial statements of the company are significant for the investors who would like to venture into the business operation. It gives them the insight whether the business is making profits or it is doomed to fail;

Financial statements are a very useful tool for individuals interested in the organization. Investors use the information to determine if it a wise decision to put their money into the organization. Investors need to determine if the organization has been successful and profitable and will continue to be successful and profitable. Creditors use the financial statements to determine the amount of credit that should be advanced to the organization. Employees generally do not look at the financial statements, but if a new executive was thinking of joining the organization, he or she may want to see the potential of the organization to make sure the investors are becoming a part of a successful organization. Management uses the financial statements on a monthly basis to determine which areas of the organization are profitable and which areas of the organization that needs to be discontinued or restructure to become more profitable.

Financial Statements basically show the historical performance or record of the company at some previous point of time. By the time when financial statements are made public, changes are many economical areas such as market conditions, currency exchange rate and inflations can change the values of assets and liabilities. In this case there often exist discrepancies between book value of assets and their market values.