8. Introduction to Financial Statements – User of Financial Statements Trends and recent development in the prosperity of the entity and range of it’s activities. Public , including tax payers, ratepayers and environmental groups Interested in allocation of resources and also to regulate the activities of an enterprise and determining tax policies and as a basis for national income. Government , including tax authorities, government departments and local authorities Whether the payment of loan will be made in due dates and enable sustainability of business for future business with the enterprise. Business contacts including customers, trade creditors, competitors and potential take-over bidders Interested in stability and profitability for employment opportunities, remuneration and retirement benefits. Employees (existing, potential and past) The amount will be paid when due and for continuation of the business. Loan creditors ie, existing and potential holders of debentures and loan stock, and providers of short-term loans They are interested whether buy, hold or sell the shares in hand and also enable them in payment of dividends. Equity investors (existing and potential) Interest of the user User of the financial statements
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10. Why do we audit them- Need for Audit Principle (Shareholders) Directors Auditor Information asymmetry and conflict of interest lead to information risk for the principle Principle provides capital and hires manager to manage it. Directors hires audit to report on the fairness of manager financial statements. Risk information asymmetry of principle reduce. Auditor gathers evidence to evaluate fairness of manager financial statements. Director is accountable to Principle; provides financial reports.