1.1 Introduction

In the first part of this chapter we will be reviewing the groups of people who might use financial statements and thinking about what sort of information they might need. We will also be looking at the regulatory framework within which published financial statements are prepared.

We will then obtain an overview of the three main published financial statements (the profit and loss account or income and expenditure account, the balance sheet and the cash flow statement): what they are and what general purpose they serve.

1.2 Who Uses Financial Statements and What Sort of Information Might They Need?

The list of people who might need the information provided by financial statements seems to grow longer every day. Some of these people are directly connected with the organisation, for example its employees and managers, others are not directly connected but they may be affected by its management of finance or its financial stability, for example the general public.

In this part of the chapter we will look at the user groups listed below. This list is by no means exhaustive but it covers the main categories.

• The owners of the business

• Managers, employees and prospective employees

• Lenders and potential lenders

• Customers

• Suppliers

• The government

• Donors/sponsors

• The public

• Analysts and advisers