The Signifiance of Financial Accounting in Business World

Topics: Income statement, Balance sheet, Financial statements Pages: 4 (1269 words) Published: December 17, 2012
The significance of financial accounting in the business world Hong Kong has long been a prestigious international financial centre attracting global enterprises investment. Being as competitive as in UK and the U.S., Hong Kong has its word-to-mouth sound financial reporting system, contributing to a healthy business environment. Audited financial reporting is mandatory for business enterprises to properly disclose appropriate information to public. Financial reporting plays a vital role in financial market and business environment not only in Hong Kong, but also in the whole business world.

Financial accounting is the combination of finance and accounting, with the principal objective to provide information that is useful and relevant for making economic decision. There is a core relationship in between financial accounting and financial reporting. Take a statement of cash flow as an example, profound analysts carry out thorough analysis on it to forecast the future. It is believed that the pattern of future cash flows can be approximately predicted based on historical pattern, operation style and discrete business events of a company. By the use of different cash models, such as discounted cash flow model, the analysts forecast the future stock price on a particular date and decide whether to buy or sell out such stock. We can see that there should not be without financial accounting when making financial decision.

As for the role of financial accounting, it is used to ensure that financial reporting is kept in a reasonable, understandable and trustworthy way that fulfills corresponding GAAP in different countries. In this way, the audited financial reporting becomes more trustworthy to the users. Public confidence on financial reporting, which is derived by financial accounting, is important for the stability of financial markets. In March 2012, a Chinese stock Boshiwa sharply fell 42 percent on its price after a Deloitte’s auditor resignation. In his...
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