Previously, we noted that to understand and review financial statements, it was important to know who the users and suppliers of finance accounting information were. We identified some users of finance accounting information to be managers and employees; creditors and suppliers; and directors/equity holders among others. We also highlighted the relevance of this information to these users. Today, we will be discussing suppliers of finance accounting information; the benefits and costs of supplying this information.

The primary suppliers of finance accounting information are organisations, for example Limited Liability Companies (Public or Private) and Non- Profit Making Organisations. In practice, the amount and quality of finance accounting information organisations supply are determined by their managers’ assessment of the benefits and costs of supplying or disclosing such information. Oftentimes, organisations release information only to the extent it benefits them. This is because both regulations and bargaining power during negotiation, affect the benefits and costs of disclosure; when the information supplied would cause regulators to sanction organisations, such organisations would naturally not supply so much information.

It is because of this reality that standards like the International Financial Reporting Standards, developed by the International Accounting Standards Board, among others, are being adopted globally to regulate the minimum levels of accounting information disclosed by organisations. In Nigeria publicly quoted companies must file their financial statements with the Securities and Exchange Commission and the Nigerian Stock Exchange. The required filings are the unaudited quarterly reports and the audited annual reports, both of which must include the four financial statements, viz, Statement of Financial Position; Income Statement; Statement of Cash Flow; and Statement of Stockholders.

The expanse of benefits of disclosure for an organisation ranges from its capital, labour, and input/out markets. An organisation’s performance in the labour, capital, and its input and output markets depends on how successful its activities are and how informed the markets are of its success. Such awareness can only be known from the disclosures made by the organisations. For instance, an organisation would naturally enjoy real economic incentives for disclosing reliable accounting information because it equips them to compete better in the Capital and other related markets.

On the flip side, disclosing financial information has its costs. This includes but is not limited to preparation and dissemination costs; competitive disadvantages, potential legal issues, and other costs. Although the costs incurred in preparing and disseminating finance accounting information are enormous, they are most times already incurred because the organisation would already have a need for the information for its strategic planning.

Furthermore, organisations are sometimes at a disadvantage when they make disclosures because of high competition. Competitors oftentimes review the disclosures made by organisations within the same industry to know their product segment successes, strategic alliances and innovations- these harms their competitive advantages.

Also, another cost of supplying finance accounting information is that visible organisations deal with a lot of pressure public pressure. This creates costs that are outside its selling, general and administrative expenses.

Because of the foregoing, some organisations have resorted to weak accounting standards. That is why from Warren Buffet’s investment guidance, it is noted that investors should be wary of organisations that subscribe to weak accounting processes because it is likely that their internal operations are weak.

Now that we have a rudimentary understanding of the users and suppliers of finance accounting information, we will be discussing Financial Statements next. Until then have a great weekend.

EMBA28