Why Do Stakeholders of an Organization are Interested in Financial Accounting?

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TABLE OF CONTENTS

INTRODUCTION
Financial accounting (FA) is a procedure which is useful in tracking the financial
transaction of company for particular fiscal year. It is an effective tool which helps in recording,
summarizing and presenting the financial records in a systematic and efficient manner.
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This study will highlight, the purpose of FA, and also examine why stakeholders of the
organization are interested in financial records. This study will record financial transactions
using double entry book keeping. It will also prepare final accounts in compliance with proper
principles, standards and conventions. Furthermore, this study prepare bank reconciliation
statement and also reconcile control systems.
Taj Accountants is a small business accounting firm based in London. They provide
effective accounting services such as payroll, taxation services, advice, business planning, book
keeping, etc.
Part A
1. FA and purpose.
Financial accounting (FA) is a process which is useful in tracking the financial
transaction of the Taj Accountants for particular fiscal year. It is an impelling tool which helps in
recording, summarizing and presenting the financial records in a systematic and standard
manner. This information is presented in financial reports like statement of financial position,
stockholder's equity, income statement and statement for cash flow (Lawrence, 2019). Financial
accounting is done by keeping in mind all the financial reporting standards, conventions and
principles such as (Generally accepted accounting principle) GAAP. FA is useful in critically
analysing the fiscal reports of company and also allocating the resources. It helps in determining
the growth in the Taj Accountants by comparing it with the previous statements. Financial
accounting helps in presenting the financial information in the structured manner for better
understanding and effective decision making for future success and development of the business.
There various users of financial information which mainly includes internal and external
stakeholders and it helps in better decision making. It is useful because it aid in evaluating the
current financial state of the company in a snapshot. This helps in better understanding and
formulation of plans and strategies. FA plays a crucial role in determining the liabilities and asset
of organization. It also helps in comparing the financial position with its competitors in order to
attain desired goals and objectives.
Purpose of FA
FA helps in providing in- depth information of the organization fiscal state and it also
helps in sound decision making in an accurate and efficient manner. The aim of FA is to provide
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necessary data to stakeholders of the Taj Accountancy. It is beneficial in determining the
financial strengths of the organization. It is very useful in communicating the information to the
stakeholders by formulating various financial statements on a timely manner with utmost
accuracy. This provides the snapshot of the financial health of the Taj Accountants in order to
attain greater heights. The main reason of FA is that it helps in determining the best performing
sector of the organization in order to achieve desired objectives and leads to further growth and
success (Lawrence, 2019). It gives relevant and reliable information to the stakeholders which
helps in strategic decision making. It is useful in distinguishing the results with the past historic
statements to evaluate the profitability of the organization over the particular span of period
period. It helps in controlling the cost and increasing the overall productivity of the Taj
Accountants. FA is useful in determining the flaws and take necessary action to resolve the issue
in an accurate and systematic manner. It helps in ascertaining the areas which generates higher
profit and also focuses on evaluating the factors which leads to higher manufacturing cost. It is
very crucial because it helps in forecasting the needs of the future which leads to higher
operational standards and efficiency.
FA vs MA
Financial accounting is a process which is useful in examining the financial position of
the organization to achieve desired goals and objectives. It is very crucial for external
shareholders of the organization to determine the financial position and take strategic decision in
an efficient and timely manner. Financial accounting has to prepared while complying with
various standards such as GAAP, IFRS, etc. It has to be prepared every financial year ending to
determine the position of the company for a particular accounting year.
Management accounting (MA) helps internal stakeholders of the organization to take
appropriate decision. Management accounting helps in providing statistical information which
helps in short term decision making. It is not mandatory to prepare management reports and
statements. But can be prepared anytime during a particular financial year.
Regulatory framework
Regulatory framework is the authority given to the regulators which helps in aligning
various accounting standards in the accounting practice in order to generate accurate and reliable
manner. Their focus is to ensure that the company focuses on maintaining consistency in the
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approaches during a specific accounting period (Bennett, 2017). It mainly includes GAAP, IFRS,
IAS. Financial reporting council (FRC) set standards for motoring, reporting and enforcing
accounting standards.
Conceptual framework
Conceptual framework is a set of rules, regulations and standards which are developed by
the IASB (International accounting standard board) to make sure that the uniformity is
maintained in various accounting methods. It helps in setting concepts for guidance and
disclosures.
Going concern concept: This is a fundamental framework which states that the company should
be existing for the foreseeable future period to attain long term organizational goals and
objectives.
Accrual concept: This principle helps in recording of all the revenues earned when the cash is
received by the company in a particular financial year. It helps in determining the expenses and
revenues which has not been received and paid.
2. External and Internal stakeholders.
Internal stakeholders of the organisation are entities within the organization which mainly
includes employees, BOD, managers, owners, etc. they have financial interest in the company
and it mainly focuses on vesting interest on working of the organisation to take strategic decision
(Yarahmadi and Bohloli, 2015). It is useful for internal stakeholders which helps in downsizing
and expansion of the business and take necessary decision to structure the business effectively
for attainment of long run goals and objectives.
Managers: A manager is person who takes strategic decision to control the functioning
of the business concern. Financial accounting information helps managers in taking strategic
decision in relation with the operation of the company. It helps manager in assessing the
profitability and liquidity state of organisation. Financial information helps mangers in analysing
the most profitable units and prioritize the work to attain higher profits and economies of scale. It
is also useful in optimally utilizing the resources by controlling the activities and reducing
wastage.
Employees: employees are internal stakeholders of the business, and they are interested
in the financial reports of the organisation in order to determine the overall performance of the
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