The Roles, Objectives, and Limitations of Published Annual Financial Statements

Accounting for Decision Makers
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Accounting for Decision Makers
Question 1
Critically discuss the role, objectives and limitations of published annual financial statements for companies.
Introduction
Even though most financial reports of organizations and companies are based on the calendar year, they can as well be based on the respective company’s or organization’s financial year (AICPA, 2017). Most public institutions are obligated to provide reports at interim periods all through the year. Further, they are required to give reports that cover the full financial year’s activity of the organization (Tricker, R.B. and Tricker, R.I., 2015). Most often the kind of statements given is the general-purpose financial report. This type of report includes the statements on balance sheet, income, and retained earnings. Besides, it includes the cash flows statement. The general-purpose financial report gives the investors and creditors the basis for analyzing the institution’s financial position. Together with the company’s management’s notes, the financial statement informs the decisions taken by both the creditors and investors of the organization (Chang, J.F., 2016).
Before preparing financial reports, a trial balance statement is made. The statement contains all the debit balances as well as the credit balances noted on the credit column and the debit column irrespectively (Nobes, C., 2014). The trial balance statement is made in order to establish either the profit made or the losses incurred for a particular timeline by the company. Besides, it helps give a rough idea of the firm’s financial position. The above two are the main functions of accounting in a company. So to realize this objective, financial reports are made by the company. The reports include both income and positional statements (Storey, D.J., 2016).
Roles and Objectives of Published Annual Financial Statements For Companies
Published annual financial statement for companies has several objectives. To begin with, it helps in identifying the profitability of the organization. Investments aim to make profits. No investor wishes to put his or her money into a venture which in the end would not bring in returns (DAILY, J.E., et al., 2014). It is for this reason that the financial statement of an organization is necessary. The annual financial reports of an organization are meant to expose whether the company makes sufficient profits. Besides, it offers a platform for comparing whether the annual profits are rising or decreasing about the previous years. This allows corrective measures to be put in place in case the profitability of the company is not alongside the targeted projections (Damodaran, A., 2016).
Secondly, the a...