The Signifiance of Financial Accounting in Business World

1256 Words Dec 5th, 2012 6 Pages
The significance of financial accounting in the business world
Hong Kong has long been a prestigious international financial centre attracting global enterprises investment. Being as competitive as in UK and the U.S., Hong Kong has its word-to-mouth sound financial reporting system, contributing to a healthy business environment. Audited financial reporting is mandatory for business enterprises to properly disclose appropriate information to public. Financial reporting plays a vital role in financial market and business environment not only in Hong Kong, but also in the whole business world.

Financial accounting is the combination of finance and accounting, with the principal objective to provide information that is useful and relevant
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If the company borrows money from a bank, the bank is the creditor. The bank will conduct a detailed assessment on the company’s financial reports to adjust the interest rate. The interest rate climbs up if the company is very likely to default in the future. If the company issues corporate bonds, the bond buyers are the creditors. The public shall do a similar analysis to decide whether the bond is worth buying.

When the company raises fund by capital, investors exist. No matter if it is Initial Public Offering or Seasonal Offering, the potential buyers of stock will decide whether the current stock price will go up. Apart from operation style and discrete business events in the future, what they rely on are the financial reports.

In fact, the public may also review financial reports even though they do not directly invest in the company. The municipal government may subsidize some companies providing public services, such as railway and metro companies. The funds used as subsidy are actually from the pocket of taxpayers. The public has the right to understand whether these funds are used in appropriate ways. In such cases, they may make use of financial reports as well.

Financial accounting is basically used by external users whereas management accounting is used by internal users. However, the management level also makes use of financial accounting to review the company’s financial situation, whether the company can
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