Section A.

External Financial Reporting Decisions

 Financial Accounting
o The process of reporting results and effects of the financial transactions that
a business undertakes.
o Objective is to provide financial information about the entity that is useful in
decision-making.
 Financial Statements
o Reasons for use of financial statements:
1. Make investment decisions.
2. Extend credit or not
3. Assess areas of strengths and weaknesses within the company.
4. Evaluate performance of management
5. Determine whether or not the company is in compliance with regulatory
requirements.
 Users of Financial Information
o Direct vs Indirect Users
 Direct – are those who are directly affected by the results of a
company.
 Indirect – people who represent direct users (e.g., Financial
Analysts, Advisors)
o Internal vs External
 Internal Users – make decisions within the firm.
 External Users – make decisions from outside the firm whether or
not to continue relationship with the firm, begin, or change
relationship with the firm.
o Five Financial Statements