Auditors – Companies may be required to present their financial position to auditors, who analyze the financial statements and ensure that proper financial accounting guidance has been used and the reports are free from material misstatements.Investors – Before putting their money into a company, investors often seek reports prepared using financial accounting to understand how the company has been doing and set expectations about the company’s future.Encouraging transparency – By setting rules and requirements, financial accounting forces companies to disclose certain information on how operations are going, and what risks the company is facing, painting an accurate picture of financial performance regardless of how well or poorly the company is doing.Promoting trust in financial reporting – Independent governing bodies oversee the rules of financial accounting, making the basis of reporting independent of management and a highly reliable source of accurate information.Providing insight to management – Though other methods such as managerial accounting may provide better insights, financial accounting can drive strategic concepts if a company analyzes its financial results and makes reactionary investment decisions.Lenders, regulatory bodies, tax authorities, and other external parties rely on financial information financial accounting ensures that reports are prepared using acceptable methods that hold companies accountable for their performance. Decreasing risk – Financial accounting does this by increasing accountability.Creating a standard set of rules – By delineating a standard set of rules for preparing financial statements, financial accounting creates consistency across reporting periods and different companies.It dictates when technical accounting should be used as opposed to personal opinion. Objectivity Principle – This states that while financial accounting has aspects of estimations and professional judgement, a set of financial statements should be prepared objectively.It dictates the amount of information provided within financial statements. Full Disclosure Principle – This states that the financial statements should be prepared using financial accounting guidance that includes footnotes, schedules, or commentary that transparently report the financial position of a company.The principle dictates the timing in which transactions are recorded. It strives to prevent a company from recording revenue in one year with the associated cost of generating that revenue in a different year.
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