Contribution of relevance and reliability on financial reporting Essay

Contribution of relevance and reliability on financial reporting - Essay Example Main objective of accounting policy is to produce fair valued accounting information that is highly reliable and relevant to the purpose and objectives of financials statement. Financial statements are the most important components of annual report that all public limited companies publish each year for the stakeholders of the company. The financial statements need to be the fair and ethical representation of financial details of all activities performed by the companies. Financial information is responsible for financial decision making by the investors, creditors, suppliers etc. Most important is investment decision making by the investors. So, relevance and reliability need to be two most important characteristics of financial statements of any organizations. These determine the quality of financial reporting. Main objectives of financial statements are to provide fairly reported and audited financial information to the shareholders of the organizations. So, users of financial sta tements consider it as reliable and relevant sources for taking decision for any financial purposes like investment, credit, supply etc. So, being a highly responsible for financial decision making, financial statements need to be relevant and reliable. ... So, all these external stakeholders of a company are highly reliable on its financial reporting which truly represents the company’s actual value and performance. Internal purpose of financial reporting is to retain standardized record of financial activities done by the company in a regular interval of time i.e. quarterly, half yearly and yearly. It helps the organizations to evaluate its performance at the end of each financial year and also the end of each quarter of a financial year (FASB, p.15). Companies develop future business strategies based on the past performance of the company which can only be possible to evaluate from the financial reporting of past quarter or past financial years. Companies change strategies and planning for implementing new activities for next quarter and next financial years and they also develop budgeting for next financial years by analyzing previous years projection verses actual results. All these are possible because of maintaining fair v alued financial reporting. (Narotama University, p.135). Financial statements published by the companies provide valuable information to the investors, shareholders, creditors, suppliers so that they can track the value with respect to time and uncertainty of a business entity. Future performance of a firm can be assessed by the future cash inflow and cash outflow into a business. The elements of financial statements like income statement, balance sheet and cash flow are very important to evaluate company’s performance and financial health. Investors are the most important users of financial statements. From financial statements, they assess the stewardship of management to an