3.4.1 Purpose of Accounts to Different Stakeholders Notes

Stakeholders Rely on Final Accounts to Assess Business Performance, Financial Health, and Decision-Making Capacity

1. If you were an investor considering buying shares in a company you'd want to know if the business is profitable, stable, and likely to grow, right?
2. This is where final accounts come in.

1. They include the statement of profit or loss and the statement of financial position.
2. These documents are invaluable to a wide range of stakeholders, individuals or groups with an interest in the business.

Why Stakeholders Care About Final Accounts

1. Different stakeholder groups use final accounts for different reasons.
2. Some focus on profitability, while others prioritize financial security, ethical concerns, or regulatory compliance.
3. The table below summarizes key stakeholder interests:

Internal Stakeholders: Directly Impacted by Financial Performance

1. Shareholders – Owners Who Expect Returns

1. Shareholders, as business owners, are deeply invested in financial results. They focus on:
   1. Profitability: How much the company earns after expenses.
   2. Dividends: Their share of the profits.
   3. Company valuation: The worth of their investment over time.
   4. Retained profits: Whether the company reinvests or distributes earnings.

2. Employees: Gauging Job Security and Growth Prospects

1. Employees rely on final accounts to understand the company's stability and potential for growth.
2. Key areas of interest include:
   1. Profitability: Higher profits may lead to bonuses, pay raises, or job security.
   2. Financial Stability: A strong balance sheet indicates the company can weather economic downturns.

3. Managers: Strategic Planning and Resource Allocation

1. Managers use final accounts as a foundation for decision-making.
2. They analyze financial data to:
   1. Identify Trends: Are revenues growing or declining?
   2. Control Costs: Are expenses rising faster than revenues?
   3. Plan Investments: How much capital is available for future projects?

External Stakeholders: Outside Parties Monitoring Financial Health

4. The Government – Ensuring Compliance and Taxation

1. Governments use financial accounts to:
   1. Determine tax obligations: Corporate taxes depend on profit levels.
   2. Regulate financial practices: Ensuring businesses follow financial laws.
   3. Assess economic impact: Job creation, growth, and industry stability.

5. Suppliers – Evaluating Business Reliability

1. Suppliers check financial accounts to:
   1. Ensure the business can pay invoices on time.
   2. Assess long-term profitability before offering credit terms.
   3. Analyze sales trends to predict future order volumes.

6. Customers – Want Fair Pricing and Stability

1. Customers review financial reports to:
   1. Check pricing fairness: High profits may mean overpricing.
   2. Evaluate business reliability: Will the company stay in business?

7. Pressure Groups – Holding Businesses Accountable

1. Advocacy groups analyze financial statements to highlight:
   1. Sustainability issues: Environmental and ethical concerns.
   2. Social responsibility: Fair wages, employee treatment, and community impact.

8. Investors – Funding Business Growth

1. Investors look at financial reports to decide:
   1. Whether to invest money or provide loans.
   2. If revenue and profits show steady growth.
   3. If the company faces financial risks or instability.