Objective of Financial Statements

Objective of Financial Statements

Main objective of financial statements is to provide financial information to different users of financial statement. This information helps those users for making informed economic decision. The users of financial statement are investors, lender, employees, government etc.

Some users are interested in financial performance component, while others are more interested in financial position component, and some users are interested in both financial position and financial performance component.

1.   Investor Information Needs

Investor is interested in financial statement for making future investment decision and also wants to know the performance of its current investment (return of investment). Thus prospective and current investors both are interested in financial statements.

·         Prospective investor – future investment decisions.

·         Current investor – performance of investment (Return on investment)

·         Dividend announced by the company.

 2.   Lender Information Needs

Lenders are interested in the financial statement, because they want to about the liquidity position of the entity. Thus lenders are mainly interested in statement of financial position and statement of cash flows.

3.   Employees & Trade Union

Employees are interested in financial statements to get information about the financial performance of the entity to predict possible impact thereof on their salaries. Employee wants stability of their jobs, so they may also be interested in statement of financial position.

Trade unions also frame their demands in accordance with the financial performance of the company. A stable company is also good for a career.

4.   Government

Government is obviously interested in financial statement to levy and recover the tax from the company. Government also needs financial statements to compile the national economic data i.e. overall all Growth, industry specific growth in country. This compiled data is used by government to formulate different policies like monetary policy and fiscal policy etc.

Information needs List

a.    Investor for investment decision & investment return information.

b.    Employees for salary & bonuses expectations and career planning.

c.    Lender for receiving payment of their credit and long term relationship.

d.    Government to levy & recover tax.