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Financial Statements

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1. Identify various financial statement users and discuss how the decisions these users make based on the financial statements might affect their wealth?

2. Since management prepares the company's financial statement, they may engage in certain brhaviours to alter the appearance of the statements and, possibly, mislead financial statement users. Sometimes these attempts to alter the appearance of the financial statements violate GAAP, as well as acceptable legal and ethical boundaries. Identify what the violation was, why management would engage in violation, and how such violation might harm various financial statements users.

3. Discuss possible solutions that might reduce management's incentive(s) to engage in behaviours that violate GAAP and cross over acceptable legal and ethical practices.

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Solution Summary

According to the Securities Exchange Commission (SEC), financial statements show money. The financial statements show the users, where a company's money came from, where it went, and where it is now.
A financial statement shows a summary of all the transactions that flow in an organization for a given period of time. A financial statement also helps in the comparison of the firm with other firms within the same industry and also facilitates comparison with the industry averages.

Some of the key information which is provided in the financial statements which helps in the decision making process are summarized below:

Detailed answer attached.

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According to the Securities Exchange Commission (SEC), financial statements show money. The financial statements show the users, where a company's money came from, ...

Solution provided by:
  • Chartered Accountant (Equivalent to CPA in US), Institute of Charted Accountants of India
  • Bachelor of Commerce, West Bengal University
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