Reporting to Stakeholders

What are Stakeholders? An individual or group with an interest in an organisation An individual or group with an interest in an organisation Any individual or group who can affect or are affected by the achievement of a firm’s objective Any individual or group who can affect or are affected by the achievement of a firm’s objective Groups/individuals that: Groups/individuals that: –have an interest in the well being of the company –and/or are affected by the goals, operations, activities of the organisation They have a stake in what the organisation does They have a stake in what the organisation does

Types of stakeholder Internal: internal to the firm Internal: internal to the firm –employees –shareholders /owners Connected: connected by a relationship based on a contract. Connected: connected by a relationship based on a contract. –customers –suppliers –creditors External: relationship not based on a legal contract External: relationship not based on a legal contract –competitors –government –society/ the community

The organisation and its stakeholders The organisations The internal stakeholders The connected stakeholder The external stakeholders

Financial accounting Financial accounting is the recording and presentation of business transactions in order to supply information to the owners of the business on the performance of their investment Financial accounting is the recording and presentation of business transactions in order to supply information to the owners of the business on the performance of their investment Financial accounting involves Financial accounting involves –collecting and recording information about financial events that have taken place –summarising what has happened –analysing the information –presenting it to owners and other stakeholders

The accounts deal with… Historic information and its presentation Historic information and its presentation Analysis for evaluation of performance Analysis for evaluation of performance Recording all the financial transactions that have taken place Recording all the financial transactions that have taken place Classifying transactions into major headings Classifying transactions into major headings Summarising all the transactions into final accounts Summarising all the transactions into final accounts

The stewardship function Financial accounts are prepared to reassure the providers of finance that the financial resources they have provided are safe and that they are being used wisely Financial accounts are prepared to reassure the providers of finance that the financial resources they have provided are safe and that they are being used wisely If the providers feel that their investment is unsafe they will withdraw the finance they have provided If the providers feel that their investment is unsafe they will withdraw the finance they have provided It is essential that the accounts show a true and fair view It is essential that the accounts show a true and fair view

Reporting to stakeholders As part of the stewardship function are prepared for presentation to stakeholders As part of the stewardship function are prepared for presentation to stakeholders Shareholders and potential shareholders Shareholders and potential shareholders Creditors and potential creditors Creditors and potential creditors The government The government Employees customers Employees customers Suppliers Suppliers General public General public

Annual report and accounts The annual report and accounts of a company are presented to shareholders at the annual general meeting and are also submitted to the registrar of companies at Companies House The annual report and accounts of a company are presented to shareholders at the annual general meeting and are also submitted to the registrar of companies at Companies House The report and accounts consists of The report and accounts consists of –the directors report –profit and loss account –balance sheet –cash flow statement –notes to the accounts –statement of recognised gains and losses –auditor report confirming that the accounts provide a true and fair view of the performance of the business

Shareholders The shareholders are the owners of a company and can be regarded as the key stakeholder The shareholders are the owners of a company and can be regarded as the key stakeholder Both existing and potential shareholders need the accounts to: Both existing and potential shareholders need the accounts to: –assess company performance - past present and future –evaluate their investment –inform decisions about their investment –determine what is the return and their investment and how does it compare with alternative investments? They use financial information to assess how effectively the managers are running the business and to make judgements about levels of risk and return in the future They use financial information to assess how effectively the managers are running the business and to make judgements about levels of risk and return in the future

What shareholders look for They are primarily interested in profits and dividends but also consider: They are primarily interested in profits and dividends but also consider: –long term growth prospects –the prospects for a capital gain –a say in running the business –a positive corporate image –preferential treatment as customers Financial accounts enable shareholders to evaluate the performance of the business in which they have invested Financial accounts enable shareholders to evaluate the performance of the business in which they have invested

Creditors A creditor is a person or business organisation that has lent money to the firm or is owed money for goods or services supplied on credit A creditor is a person or business organisation that has lent money to the firm or is owed money for goods or services supplied on credit They are primarily interested in the profitability of the firm, its cash flow, the extent of its liabilities and its liquidity They are primarily interested in the profitability of the firm, its cash flow, the extent of its liabilities and its liquidity Existing and potential creditors have to Existing and potential creditors have to –decide whether or not to lend more money. –determine the liquidity and solvency of the firm to assess the likelihood of repayment. Creditors use accounts to assess the ability of the business to meet its obligations and to pay interest and to repay the principal Creditors use accounts to assess the ability of the business to meet its obligations and to pay interest and to repay the principal

What the creditors look for. Prompt payment Prompt payment Payment of interest on outstanding debt Payment of interest on outstanding debt Repayment at agreed date Repayment at agreed date Credit worthiness of the organisation Credit worthiness of the organisation Assurance that the business has sufficient positive cash flow to meet obligations Assurance that the business has sufficient positive cash flow to meet obligations How much cash does the firm have? How much cash does the firm have? Does it have enough cash to pay its bills? Does it have enough cash to pay its bills? What its gearing ratio? What its gearing ratio?

Suppliers They will be interested in accounts of customer firms to determine whether to not to give trade credit They will be interested in accounts of customer firms to determine whether to not to give trade credit Their main interests are profits, cash flow, the liquidity position, solvency and the extent of the firm’s existing liabilities Their main interests are profits, cash flow, the liquidity position, solvency and the extent of the firm’s existing liabilities They use financial information to assess the ability of the business to pay for the goods and services provided They use financial information to assess the ability of the business to pay for the goods and services provided

Suppliers Firms that supply goods and services to the business are interested in: Firms that supply goods and services to the business are interested in: –long term relationship –the size and value of contracts –frequent and regular orders –prompt payment –fair prices –growth leading to more orders

Competitors Will want to see the performance of their rivals Will want to see the performance of their rivals They will look at profit margins, investment, trend in sales etc They will look at profit margins, investment, trend in sales etc Competitors have no greater rights to inspect the accounts of a business organisation than any other member of the public but as part of a benchmarking exercise there might be some sharing of additional information Competitors have no greater rights to inspect the accounts of a business organisation than any other member of the public but as part of a benchmarking exercise there might be some sharing of additional information

Employees Employees are primarily interested in: Employees are primarily interested in: –pay –job security –working conditions –fair treatment –fringe benefits –health and safety –promotion prospects –training opportunities Although these do show up in the firms accounts employees should realise that each of the above is dependent upon the prosperity and stability of the firm that employs them Although these do show up in the firms accounts employees should realise that each of the above is dependent upon the prosperity and stability of the firm that employs them Therefore they should be interested in the financial accounts of the business Therefore they should be interested in the financial accounts of the business

Employees Are concerned about the performance of the firm Are concerned about the performance of the firm Is the firm stable? Is the firm stable? What are the trends in sales? What are the trends in sales? Are jobs secure? Are jobs secure? Are they receiving fair pay in the light of the business’s performance? Are they receiving fair pay in the light of the business’s performance? There is an additional reason to be interested in accounts if employees receive a bonus linked to profits There is an additional reason to be interested in accounts if employees receive a bonus linked to profits Employees and their trade unions use financial information to assess the ability of the firm to continue to provide employment and to reward employees for their efforts Employees and their trade unions use financial information to assess the ability of the firm to continue to provide employment and to reward employees for their efforts

Salaried managers These people are employees and share the concerns of other employees These people are employees and share the concerns of other employees In addition, accounts provide a basis for planning, control and decisions making In addition, accounts provide a basis for planning, control and decisions making They are concerned that the financial accounts show the business in a good light They are concerned that the financial accounts show the business in a good light Growth of the organisation might be reflected in their salary or bonus and for this reason they should be interested in the financial accounts for their employer Growth of the organisation might be reflected in their salary or bonus and for this reason they should be interested in the financial accounts for their employer They are more interested in the (private) management accounts rather than the published financial accounts They are more interested in the (private) management accounts rather than the published financial accounts Managers use accounts to help them make decisions and plans for the business and to help them exercise control to try to ensure the plans come to fruition Managers use accounts to help them make decisions and plans for the business and to help them exercise control to try to ensure the plans come to fruition

Customers Customers are primarily interested in: Customers are primarily interested in: –low prices –value for money –high quality products –good service –innovation involving the development of new products –certain and regular supply –choice Their main interest in the accounts as customers probably lies in assessing the extent to which profits have been made at the expense of customers in terms of high prices Their main interest in the accounts as customers probably lies in assessing the extent to which profits have been made at the expense of customers in terms of high prices

The government (1) The government uses business’s financial accounts in order The government uses business’s financial accounts in order –to assess liability for corporation tax and VAT –to compile business and economic statistics –to ensure compliance with regulations Civil servants uses accounts to assess how much tax the business should pay, whether it complies with regulations, whether financial support is justified Civil servants uses accounts to assess how much tax the business should pay, whether it complies with regulations, whether financial support is justified

The government (2) Government is assesses firms in terms of their: Government is assesses firms in terms of their: –payment of taxes –compliance with laws and regulations –efficient use of resources –employment –contribution to the national economy

The general public Members of the public and community may inspect accounts to satisfy a curiosity about business in general Members of the public and community may inspect accounts to satisfy a curiosity about business in general They may use accounts to assess the ability of the business to continue to provide employment and the extent to which it behaves in a socially responsible manner They may use accounts to assess the ability of the business to continue to provide employment and the extent to which it behaves in a socially responsible manner