Why are accurate financial statements important for outside business interests?
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Accurate financial statements are very important for outside business interests. There reasons are that financial statements give a view of the assets and liabilities, income and losses, cash-flow, and retained earnings of the firm. It is necessary for the outside business interest to get the facts and figures accurately so that the financial status of the company is clear to them. The outside business interest has legitimate rights to know the financial condition of the business. They also have the right to get accurate and correct information about the business.
The outside business interests are the suppliers, customers, the government, creditors, shareholders, and the community at large. Each business interest needs accurate financial statements for their own purposes. They often have financial interest in the business and need to know accurate financial information about the company.
First let us consider the suppliers. The suppliers need to know the if the firm has enough liquid cash to make payments to him on time. The balance sheet and the cash flow statement inform him of this matter. However, it is imperative that the information be accurate. For instance, if the liquidity information is incorrect and the supplier sends the goods to the company and the company cannot pay, the supplier's business will fail. So it is important that the supplier gets accurate financial statements of the company. The supplier also needs to know the financial status of the company to make decisions regarding extending credit to the firm. In accurate information can lead to bad debts for the suppliers.
The customers need to know accurate financial condition of the firm. The best way to know it are the financial statements. The customers need to know if the company has the financial capacity to fulfill its obligations. If the firm provides accurate financial statements, the ...
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