Financial Accounting Principles: Stakeholders and Objectives

This assignment delves into the core principles of financial accounting, elucidating its meaning, objectives, and practical applications. It begins by defining financial accounting as the process of recording, analyzing, and presenting financial information to meet the decision-making needs of various stakeholders. The assignment then explores the key objectives of financial accounting, including systematically recording transactions, providing information for rational decision-making, acting as an information system, determining performance and financial position, and protecting business properties. The assignment further identifies and categorizes stakeholders, differentiating between internal stakeholders (owners and managers) and external stakeholders (investors, lenders, government, and auditors), detailing their respective interests in the financial information of an enterprise. The analysis underscores the importance of financial accounting principles in ensuring consistency, accuracy, and efficiency in financial reporting, ultimately supporting informed economic decisions and driving business success. The provided solution offers a comprehensive understanding of the subject matter, making it a valuable resource for students studying financial accounting.

FINANCIAL ACCOUNTING
PRINCIPLES

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
a. ......................................................................................................................................................1
1. Explaining the meaning of financial accounting and its objectives........................................1
2. Listing two internal and four external stakeholders and also their interest in the financial
information of the enterprise. .....................................................................................................1
CONCLUSION................................................................................................................................1
REFERENCES................................................................................................................................2

INTRODUCTION
Financial accounting principles means the guidelines towards established standards in
order to achieve sound practices of the accounting for the purpose of reporting periodic
performance and the financial status of the business. Financial accounting is the process of
collecting and processing the financial information in order to meet decision-making requirement
of the parties internally as well as externally. The present study is based on various aspects of the
financial accounting principles that includes concept and the purpose of the financial accounting
and the users of the accounting information who are interested in the financial statements of the
organization and are highly affected by the financial health of the business.
a.
1. Explaining the meaning of financial accounting and its objectives.
Financial accounting referred as the branch of the accounting that maintains the track of
the financial transactions of an enterprise (Mullinova, 2016.). With the use of the standardized
guidelines, recording, analysing and presenting the transactions of the business in the financial
report or the financial statement like the income statement and the balance sheet. This helps in
reporting operating profits and the business value to stakeholders. Financial accounting is been
used for the purpose of reporting the financial transactions to the users in an appropriate format
which is acceptable and is adaptable by all the businesses.
Purpose of Financial accounting :
To keep the records systematically- Financial accounting facilitates systematic record of
the business transactions. This in turn helps in developing the effective preparation of the
financial statements.
To provide for rational decision-making- The major purpose of the financial accounting
is to facilitate information which is essential for making sound economic decisions.
To act as the Information system- The primary objective of the financial accounting is
the preparation of the financial reports that provides for the information relating to the
performance of the company to the internal and the external parties like investors, tax authorities,
employees, owners, creditors etc (Libby, 2017). Reporting of the financial information with
fulfilment of the legal obligation to all the interested users is also one of the most important
objective of the financial accounting.
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To ascertain performance and position- The other purposes of the financial accounting
is to find out for several balances and providing the knowledge of the transactions.
Ascertainment of the net profits and depicting the financial position is also considered as the
important purposes of the financial accounting (Christensen, Nikolaev and Wittenberg‐
Moerman, 2016). It could be done by making proper record of the revenues and expenses for the
specific period. Financial position is been assessed by the proper maintenance of the record
regarding assets, liabilities and the common equity of the organization.
To protect the business properties- Protecting the properties of the business from the
unjustified and the unwarranted use. It is been done by proper supply of the accounting
information to owner or managers in relation to proprietor's funds, inventory, fixed assets etc
(Abernathy, Beyer, Masli and Stefaniak, 2015). This information helps the managers in assuring
that funds of business is not been kept idle or non-utilised.
Thus, these were the main purpose for which the financial accounting is made by the company in
consideration with all the accounting conventions and the principles as provisioned by Generally
Accepted Accounting Principles (GAAP) and the standards as given by the International
Financial Reporting Standards (IFRS).
2. Listing two internal and four external stakeholders and also their interest in the financial
information of the enterprise.
Stakeholder means the parties that are concerned and has the keen interest in the affairs
of the enterprise and are affected by the business of the organization (Brown and Jones, 2015).
Mainly there are two types of the stakeholders that include internal and the external stakeholders.
Internal stakeholders refers to the parties that are present within the organization such as owners,
employees and Managers. Among these the two major internal stakeholders are as follows-
Owners- Proprietor require to assess the financial information for knowing the
performance and position of its business in the overall market. He also has the keen interest in
knowing the risk involved in the business and uses the accounting information for analysing the
stability level of its business. Financial information is also been used for determining the extent
to which the changes in the economic factors had affected the business over the years (Asatiani,
and et.al., 2019). This information also helps the owners for making the decisions regarding the
further investment in the business or use of the financial resources in some other profitable
projects or the business ventures.
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Managers- They needs the financial information in order to plan, measure, monitors and
making the rational business decisions (Andon, Baxter and Chua, 2015). Managers require for
allocating financial, capital and the human resources towards the competitive needs of the
growth of business through the use of the budgeting process. Formulating and reviewing the
budgets effectively needs reliable data in relation to the activities, products, processes, segments,
services and the departments of business. Manager needs the financial information for
monitoring performance of the business by making the comparison against the past performance,
industry benchmarks, key performance indicator and the competitor analysis. It also helps the
mangers in making suitable decisions related to investment, pricing and the financing within the
enterprise. For example- For making the investment decisions manger needs the information
relating to the return on investment in order to compute the cost and revenues for the proposed
project.
External stakeholders referred as the parties that are present outside the company and are
affected by the overall market position of the company. The four major external stakeholders are
as follows-
Investors- They play the most important role and require to know the information
relating to the performance of their investment by assessing the financial statements of the
company in which they had made their investment (Georgiou, 2018). Assessment of the financial
statement helps them in making evaluation of the profit and in valuation of the risk involved in
their investment. They use such information for determining that their investment fits to their
portfolio and deciding whether to hold, decrease or increase the size of their investment.
Lenders- They play a vital role for the organization as they use the accounting
information for analysing the credit worthiness of an entity that it is capable of meeting its
obligations or not. On the basis of this assessment they offer the loans and the other credit
facilities to the company so that the amount of sum lend could be recovered within the time
without any default (Givoly, Hayn and Katz, 2017). Sound financial health of the borrower is
been indicated by its ability to pay-off its liabilities and high profitability can be said when the
organization has secured assets and the liquidity. Poor liquidity condition, low profits and lack in
assets that could be secured and the inability to pay-off the liabilities effectively reflects the poor
financial condition.
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Government- It is the external party that ensures for all the accounting disclosures that
are been made by the company or not and if the disclosures are made then it is been made in
compliance with all the rules, regulations and the standards as provisioned. Government checks
for the financial information in order to protect the interest of the other users whose decisions
rely on such information (Diatmika, Irianto and Baridwan, 2016). Government defines,
monitors and provides for the accounting thresholds like sales revenue and the profit of each of
the enterprise will be grounds for determining the size of each and every business for ensuring
that all the compliance in relation to employee, safe and the consumer regulations has been made
or not.
Auditors- They examine the accounting records and the statements of the business for the
purpose of forming a relevant audit opinion (Users of Accounting Information, 2017). The other
stakeholders such as investors, government relies on the opinion of the external auditors
regarding the accuracy of the financial statement of the company.
Thus, these are the main internal and the external stakeholders who are having the interest and
are highly affected by the financial results of an entity.
CONCLUSION
From the above analysis it can be concluded that financial accounting principles plays a
crucial role in developing the consistency in maintaining the record of the financial transactions
so that effective comparison could be made over the years. It allows for accuracy and the
efficient viewing of the company's statements and the reports. It enables the internal and the
external users in serving the adequate information to them so that they could be able to take
sound economic decisions which in turn leads the business to growing success across the world.
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REFERENCES
Books and Journals
Abernathy, J. L., Beyer, B., Masli, A. and Stefaniak, C. M., 2015. How the source of audit
committee accounting expertise influences financial reporting timeliness. Current Issues in
Auditing. 9(1). pp.P1-P9.
Andon, P., Baxter, J. and Chua, W. F., 2015. Accounting for stakeholders and making
accounting useful. Journal of Management Studies. 52(7). pp.986-1002.
Asatiani, A. and et.al., 2019. Impact of accounting process characteristics on accounting
outsourcing-Comparison of users and non-users of cloud-based accounting information
systems. International Journal of Accounting Information Systems. pp.1-50.
Brown, R. and Jones, M., 2015. Mapping and exploring the topography of contemporary
financial accounting research. The British Accounting Review. 47(3). pp.237-261.
Christensen, H. B., Nikolaev, V. V. and Wittenberg‐Moerman, R., 2016. Accounting
information in financial contracting: The incomplete contract theory perspective. Journal of
Accounting Research. 54(2). pp.397-435.
Diatmika, I. W. B., Irianto, G. and Baridwan, Z., 2016. Determinants of behavior intention of
accounting information systems based information technology acceptance. Imperial
Journal of Interdisciplinary Research. 2(8). pp.125-138.
Georgiou, O., 2018. The worth of fair value accounting: dissonance between users and standard
setters. Contemporary Accounting Research. 35(3). pp.1297-1331.
Givoly, D., Hayn, C. and Katz, S., 2017. The changing relevance of accounting information to
debt holders over time. Review of Accounting Studies. 22(1). pp.64-108.
Libby, R., 2017. Accounting and human information processing. In The Routledge Companion
to Behavioural Accounting Research (pp. 42-54). Routledge.
Mullinova, S., 2016. Use of the principles of IFRS (IAS) 39" Financial instruments: recognition
and assessment" for bank financial accounting. Modern European Researches. (1). pp.60-
64.
Online
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Users of Accounting Information. 2017. [Online]. Available through :<https://accounting-
simplified.com/financial/introduction/users-of-accounting-information.html>
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