Financial statements may be used by different stakeholders for a multitude of purposes. Owners and managers require financial statements to make important business decisions affecting its continued operations. Financial analysis is then performed on these statements, providing management with a more detailed understanding of the figures.
Employees need these reports in making collective bargaining agreements with the management, in the case of labor unions or for individuals in discussing their compensation, promotion, and rankings. Prospective investors make use of financial statements to assess the viability of investing in a business. Financial analyses are used by investors and prepared by professionals (financial analysts), thus providing them with the basis for making investment decisions.
“Vendors who extend credit to a business require financial statements to assess the creditworthiness of the business.”
The government also produces financial reports to stay accountable to the public and people. The rules for recording, measurement, and presentation of government financial statements may be different from those required for business and even for non-profit organizations. The requirements for non-profit financial statements differ from those of a for-profit institution and therefore, will not be discussed.