Financial Statements

FINANCIAL STATEMENTS
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Financial statements tend to highlight the financial performance of a given reporting entity
during a given period. These are required so as to assist in prudent decision making by the
external users. The major external users are shareholders, creditors and lenders. The
shareholders need to be take decision with regards to staying invested in the company, make
fresh investments or exit from the stock. The creditors tend to consider the liquidity position
of the company and decide the credit period that ought to be extended to the company for
supplies. The lenders tend to take decision with regards to whether any incremental loans
should be extended to the company or not considering their ability to serve the debt
obligations (Damodaran, 2015).
Financial statements need to have various attributes. One of these is understandability which
implies that the financial statements should be presented in such a manner that external users
can clearly interpret and understand the data. In this regards, voluntary disclosures are pivotal
as they enhance the overall transparency. Additional key attribute of financial statements is
relevance which implies that these financial statements should contain the information which
the key external users would require to make decision. The various necessary decisions to be
made by the key external users have been indicated already and the necessary information
should be supplied by the financial statements or else these would be irrelevant (Brealey,
Myers & Allen, 2014).
Additionally, the financial statements ought to be reliable which implies that the information
provided by the financial statement should be correct and complete. If the financial
statements tend to possess material errors or does not present a fair view of the financial
performance of the underlying company, then the same cannot be used. As a result, it is
imperative that the personnel involved in financial statements preparing and providing
assurance services must discharge their duties with due care and diligence (Parrino &
Kidwell, 2014). Another key attribute of financial statements is comparability which implies
that it must be possible to compare the performance of the firm in the current period with the
prior periods. A key requirement in this regards is that the various accounting policies
pursued by the company should be kept constant and must not be altered unless there is a
compelling reason to change the same. Finally, it is imperative that the financial statements
must be released within a reasonable time frame. As a result, the financial statements of the
most recent time period should ideally be released within 90 days of the ending of the time
period as delay in the same would adversely impact the relevance of the same (Petty et. al.,
2015).