1. Describe the need for financial information (FI:579)
7.01 Acquire a foundational knowledge of accounting to understand its nature and scope.
Describe the need for financial information (FI:579)

2. Discuss characteristics of useful financial information
UNDERSTANDABLE & USEFUL
Accounting information should be readily understandable to the intended users of the information.
This is a function of both the intended users and the intended uses of the information. Accounting systems that define either the users or uses narrowly may justify more complex information requirements and standards. Accounting systems that envision a broad body of users and/or uses would tend towards less complexity in published information and standards.
Typically the belief that, for information to be understandable, information contained in the various financial disclosures and reporting must be transparent (i.e., clearly disclosed and readily discernable).
RELEVANT
The information should be relevant to the decision-making users of the information. It should make a difference in their decisions. Typically, this means the information must be:
Timely
Have predictive value
Provide useful feedback on past decisions
RELIABLE
The information should be reliable and dependable. This usually includes the concepts of:
Representational faithfulness – the information represents what it claims to represent. For example, if the reported value of a common stock holding purports to be the current market value, that value should be approximately what the stock could be sold for by the company holding it.
Verifiability - another person or entity should be able to recreate the reported value using the same information that the reporting entity had.
Completeness - the reported information should not be missing a material fact or consideration that would make the reported information misleading.
The concept of neutrality is sometimes incorporated into the concept of reliability.

3. Discuss characteristics of useful financial information
COMPARABLE AND CONSISTENT
For accounting information to be usable, it must allow for comparisons across time and across competing interests (such as competing companies or industries).
This leads to a need for some consistency, wherever such comparisons are to be expected. For example, comparisons of two companies would be very difficult and potentially misleading if one discounts all its liabilities while the other discounts none of its liabilities.
UNBIASED
Information that is biased can be misleading.
Biased information is not useful unless the users understand the bias, any bias is consistently applied across years/firms/industries, and  the users can adjust the reported results to reflect their own desired bias.
When faced with uncertainty, there is a need to either require reporting of unbiased values accompanied with sufficient disclosure, or require the reporting of biased (prudent or conservative) values with the bias determined in a predictable, consistent fashion.
COST-BENEFIT EFFECTIVE
General understanding that the development of accounting information consumes resources.
As such, the cost of producing such information should be reasonable in relation to the expected benefit.
Use the materiality  accounting rule – may not have to be fully followed for immaterial items if full compliance would result in unwarranted higher costs.

4. Describe the usefulness of financial information in identifying trends.
Businesses concluded that this objective of financial reporting should be sufficiently broad to encompass all the decisions that are made by capital providers. This includes information that is helpful in assessing an entity’s ability to generate net cash inflows and how management has fulfilled its stewardship responsibility.
Businesses further concluded that this objective should be the same for all entities that issue such reports, regardless of the size of the entity, or whether or not the entity is listed.
Information about the economic resources of the entity (its assets),
Information about the claims on those resources (its liabilities and equity), and
Information about the effects of transactions and other events and circumstances that change an entity’s economic resources and the claims on those resources.
Information is one of the cornerstones of management. Almost everything else in business builds on and uses financial information.

5. Explain how managers use financial information (e.g.,).
Business wants to know the profit earned or loss suffered during the year  and its financial position at the end of the year. This is disclosed by income statement (Trading and Profit and Loss Account) and position statement (Balance Sheet) respectively. Book-keeping records provide necessary data for preparing these statements.
Financial information and data are needed for cost ascertainment, planning, budgeting and forecasting. Records maintained by book-keeping are the source of such information.
Financial information is used in planning strategies, executing strategies, and feedback from execution of the strategy .
Book-keeping records are regarded by the tax authorities as authentic and reliable for determining tax liability.

6. Discuss the usefulness of financial information in contracts.
Financial audits of external aid operations focus on historical financial information and on compliance with contractual conditions. Financial audits become useful in an advanced stage of project implementation and when a significant amount of funds have been spent.
Financial statements present information that is more relevant and no less reliable in measuring contractual rights to future investment management fees at an amount that exceeds their fair value as implied by a comparison with current market-based fees for similar services .

7. Discuss how analysis of financial data aids in understanding accounting treatment.
Accounting is the underlying activity within an organization that provides much of the raw financial information.
Accounting can be defined as:
"The recording of financial transactions over a period of time and the communication of the resulting information to interested parties."
This definition implies a number of things:
there must be a record keeper
the period of time must be agreed
there are interested parties
something is communicated
If accounting is to be carried out in a good quality way, all the above must be clearly agreed and understood by all.

8. Describe how analysis of financial data aids in verifying information.
Profit and Loss accounts providing details of whether the business is making efficient use of financial resources.
Balance Sheet information providing details of a businesses assets and liabilities, as well as the liquidity of the business.
Sales and purchases information setting out particular types of trading and accounts with particular customers and suppliers.
Information about the purchase of assets and liabilities.
Information about the wages paid out by a business.
Information about costs.

9. Explain how analysis of financial data aids in determining variance.
Budgets are plans for the future. Managers are able to monitor budgets in order to spot variances and make ongoing adjustments to plans.
Financial statements such as the profit and loss account and the balance sheet provide information about past performance. These statements can be compared with the results achieved by similar companies or in previous time periods to identify areas for improvement.
Variance =Actual Costs - Budgeting Costs
Examples: Company XYZ budgeted to only spend $1,500 in office supplies for 2012 fiscal year. When it came time to do their taxes their receipts showed that they actually spent $1,745. The Variance (difference) is $1, $1,500 = $245 (positive number = over budget where a negative number = under budget).

10. Discuss how analysis of financial data guides financial decision-making.
Provide useful and helpful information for making informed business and economic decisions. In other words, provide the users of financial information such as managers, owners, potential investors, creditors, and other users with useful information that may affect the decisions they are confronted with.
Accounting information should therefore be understandable, relevant, reliable, and complete in order to aid in decisions. Usefulness for decision making is the most important characteristic of information.

11. Student Activity
Students are to conduct secondary research to develop a one-page written report that answers the following questions:
1 How do managers use financial information?
2 Who outside the company needs financial information? How do they use the financial information?
3 What characteristics must financial information possess to be useful?
Sources:
_User_Survey.pdf