Reporting to StakeholdersReporting to Stakeholders

What are Stakeholders? What are Stakeholders?

• An individual or group with an interest in an An individual or group with an interest in an organisationorganisation

• Any individual or group who can affect or are Any individual or group who can affect or are affected by the achievement of a firm’s objectiveaffected by the achievement of a firm’s objective

• Groups/individuals that:Groups/individuals that:– have an interest in the well being of the company have an interest in the well being of the company – and/or are affected by the goals, operations, activities and/or are affected by the goals, operations, activities

of the organisationof the organisation

• They have a stake in what the organisation doesThey have a stake in what the organisation does

Types of stakeholderTypes of stakeholder

• Internal:Internal: internal to the firm internal to the firm– employeesemployees– shareholders /ownersshareholders /owners

• ConnectedConnected: connected by a relationship based on : connected by a relationship based on a contract.a contract.– customerscustomers– supplierssuppliers– creditorscreditors

• ExternalExternal: relationship not based on a legal contract: relationship not based on a legal contract– competitorscompetitors– governmentgovernment– society/ the communitysociety/ the community

The organisation and its The organisation and its stakeholdersstakeholders

The external stakeholders

The connected stakeholder

The internal stakeholders

The organisations

Financial accountingFinancial accounting

• Financial accounting is the recording and Financial accounting is the recording and presentation of business transactions in order to presentation of business transactions in order to supply information to the owners of the business supply information to the owners of the business on the performance of their investmenton the performance of their investment

• Financial accounting involves Financial accounting involves – collecting and recording information about financial collecting and recording information about financial

events that have taken placeevents that have taken place– summarising what has happenedsummarising what has happened– analysing the informationanalysing the information– presenting it to owners and other stakeholderspresenting it to owners and other stakeholders

The accounts deal with…The accounts deal with…

• Historic information and its presentationHistoric information and its presentation

• Analysis for evaluation of performanceAnalysis for evaluation of performance

• Recording all the financial transactions Recording all the financial transactions that have taken placethat have taken place

• Classifying transactions into major Classifying transactions into major headingsheadings

• Summarising all the transactions into Summarising all the transactions into final accountsfinal accounts

The stewardship function The stewardship function

• Financial accounts are prepared to Financial accounts are prepared to reassure the providers of finance that the reassure the providers of finance that the financial resources they have provided are financial resources they have provided are safe and that they are being used wiselysafe and that they are being used wisely

• If the providers feel that their investment If the providers feel that their investment is unsafe they will withdraw the finance is unsafe they will withdraw the finance they have providedthey have provided

• It is essential that the accounts show a It is essential that the accounts show a true and fair viewtrue and fair view

Reporting to stakeholdersReporting to stakeholders

• As part of the stewardship function are As part of the stewardship function are prepared for presentation to stakeholdersprepared for presentation to stakeholders

• Shareholders and potential shareholdersShareholders and potential shareholders

• Creditors and potential creditorsCreditors and potential creditors

• The governmentThe government

• Employees customersEmployees customers

• SuppliersSuppliers

• General publicGeneral public

Annual report and accountsAnnual report and accounts

• The annual report and accounts of a company The annual report and accounts of a company are presented to shareholders at the annual are presented to shareholders at the annual general meeting and are also submitted to the general meeting and are also submitted to the registrar of companies at Companies Houseregistrar of companies at Companies House

• The report and accounts consists ofThe report and accounts consists of– the directors reportthe directors report– profit and loss accountprofit and loss account– balance sheetbalance sheet– cash flow statementcash flow statement– notes to the accountsnotes to the accounts– statement of recognised gains and lossesstatement of recognised gains and losses– auditor report confirming that the accounts provide a auditor report confirming that the accounts provide a

true and fair view of the performance of the businesstrue and fair view of the performance of the business

Shareholders Shareholders

• The shareholders are the owners of a company The shareholders are the owners of a company and can be regarded as the key stakeholderand can be regarded as the key stakeholder

• Both existing and potential shareholders need the Both existing and potential shareholders need the accounts to:accounts to:– assess company performance - past present and futureassess company performance - past present and future– evaluate their investmentevaluate their investment– inform decisions about their investmentinform decisions about their investment– determine what is the return and their investment and determine what is the return and their investment and

how does it compare with alternative investments?how does it compare with alternative investments?• They use financial information to assess how They use financial information to assess how

effectively the managers are running the business effectively the managers are running the business and to make judgements about levels of risk and and to make judgements about levels of risk and return in the futurereturn in the future

What shareholders look forWhat shareholders look for

• They are primarily interested in profits and They are primarily interested in profits and dividends but also consider:dividends but also consider:– long term growth prospectslong term growth prospects– the prospects for a capital gainthe prospects for a capital gain– a say in running the businessa say in running the business– a positive corporate imagea positive corporate image– preferential treatment as customerspreferential treatment as customers

• Financial accounts enable shareholders to Financial accounts enable shareholders to evaluate the performance of the business evaluate the performance of the business in which they have investedin which they have invested

CreditorsCreditors

• A creditor is a person or business organisation A creditor is a person or business organisation that has lent money to the firm or is owed money that has lent money to the firm or is owed money for goods or services supplied on creditfor goods or services supplied on credit

• They are primarily interested in the profitability of They are primarily interested in the profitability of the firm, its cash flow, the extent of its liabilities the firm, its cash flow, the extent of its liabilities and its liquidityand its liquidity

• Existing and potential creditors have to Existing and potential creditors have to – decide whether or not to lend more money.decide whether or not to lend more money.– determine the liquidity and solvency of the firm to determine the liquidity and solvency of the firm to

assess the likelihood of repayment.assess the likelihood of repayment.• Creditors use accounts to assess the ability of the Creditors use accounts to assess the ability of the

business to meet its obligations and to pay business to meet its obligations and to pay interest and to repay the principalinterest and to repay the principal

What the creditors look for.What the creditors look for.

• Prompt paymentPrompt payment• Payment of interest on outstanding debtPayment of interest on outstanding debt• Repayment at agreed dateRepayment at agreed date• Credit worthiness of the organisationCredit worthiness of the organisation• Assurance that the business has sufficient Assurance that the business has sufficient

positive cash flow to meet obligationspositive 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 Suppliers

• They will be interested in accounts of They will be interested in accounts of customer firms to determine whether to customer firms to determine whether to not to give trade creditnot to give trade credit

• Their main interests are profits, cash Their main interests are profits, cash flow, the liquidity position, solvency and flow, the liquidity position, solvency and the extent of the firm’s existing liabilitiesthe extent of the firm’s existing liabilities

• They use financial information to assess They use financial information to assess the ability of the business to pay for the the ability of the business to pay for the goods and services provided goods and services provided

Suppliers Suppliers

• Firms that supply goods and services Firms that supply goods and services to the business are interested in:to the business are interested in:– long term relationshiplong term relationship– the size and value of contractsthe size and value of contracts– frequent and regular ordersfrequent and regular orders– prompt paymentprompt payment– fair pricesfair prices– growth leading to more ordersgrowth leading to more orders

Competitors Competitors

• Will want to see the performance of their Will want to see the performance of their rivalsrivals

• They will look at profit margins, They will look at profit margins, investment, trend in sales etcinvestment, trend in sales etc

• Competitors have no greater rights to Competitors have no greater rights to inspect the accounts of a business inspect the accounts of a business organisation than any other member of organisation than any other member of the public but as part of a benchmarking the public but as part of a benchmarking exercise there might be some sharing of exercise there might be some sharing of additional informationadditional information

Employees Employees

• Employees are primarily interested in:Employees are primarily interested in:– paypay– job securityjob security– working conditionsworking conditions– fair treatmentfair treatment– fringe benefitsfringe benefits– health and safetyhealth and safety– promotion prospectspromotion prospects– training opportunitiestraining opportunities

• Although these do show up in the firms accounts Although these do show up in the firms accounts employees should realise that each of the above is employees should realise that each of the above is dependent upon the prosperity and stability of the firm dependent upon the prosperity and stability of the firm that employs themthat employs them

• Therefore they should be interested in the financial Therefore they should be interested in the financial accounts of the businessaccounts of the business

Employees Employees

• Are concerned about the performance of the firmAre 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 Are they receiving fair pay in the light of the

business’s performance?business’s performance?• There is an additional reason to be interested in There is an additional reason to be interested in

accounts if employees receive a bonus linked to profitsaccounts if employees receive a bonus linked to profits• Employees and their trade unions use financial Employees and their trade unions use financial

information to assess the ability of the firm to continue information to assess the ability of the firm to continue to provide employment and to reward employees for to provide employment and to reward employees for their effortstheir efforts

Salaried managersSalaried managers

• These people are employees and share the concerns of These people are employees and share the concerns of other employeesother employees

• In addition, accounts provide a basis for planning, In addition, accounts provide a basis for planning, control and decisions makingcontrol and decisions making

• They are concerned that the financial accounts show They are concerned that the financial accounts show the business in a good lightthe business in a good light

• Growth of the organisation might be reflected in their Growth of the organisation might be reflected in their salary or bonus and for this reason they should be salary or bonus and for this reason they should be interested in the financial accounts for their employerinterested in the financial accounts for their employer

• They are more interested in the (private) management They are more interested in the (private) management accounts rather than the published financial accountsaccounts rather than the published financial accounts

• Managers use accounts to help them make decisions Managers use accounts to help them make decisions and plans for the business and to help them exercise and plans for the business and to help them exercise control to try to ensure the plans come to fruitioncontrol to try to ensure the plans come to fruition

Customers Customers

• Customers are primarily interested in:Customers are primarily interested in:– low priceslow prices– value for moneyvalue for money– high quality productshigh quality products– good servicegood service– innovation involving the development of new innovation involving the development of new

productsproducts– certain and regular supplycertain and regular supply– choicechoice

• Their main interest in the accounts as Their main interest in the accounts as customers probably lies in assessing the extent customers probably lies in assessing the extent to which profits have been made at the to which profits have been made at the expense of customers in terms of high pricesexpense of customers in terms of high prices

The government (1)The government (1)

• The government uses business’s financial The government uses business’s financial accounts in order accounts in order – to assess liability for corporation tax and VATto assess liability for corporation tax and VAT– to compile business and economic statisticsto compile business and economic statistics– to ensure compliance with regulationsto ensure compliance with regulations

• Civil servants uses accounts to assess how Civil servants uses accounts to assess how much tax the business should pay, much tax the business should pay, whether it complies with regulations, whether it complies with regulations, whether financial support is justified whether financial support is justified

The government (2) The government (2)

• Government is assesses firms in Government is assesses firms in terms of their: terms of their: – payment of taxespayment of taxes– compliance with laws and regulationscompliance with laws and regulations– efficient use of resourcesefficient use of resources– employmentemployment– contribution to the national economycontribution to the national economy

The general publicThe general public

• Members of the public and community Members of the public and community may inspect accounts to satisfy a may inspect accounts to satisfy a curiosity about business in generalcuriosity about business in general

• They may use accounts to assess the They may use accounts to assess the ability of the business to continue to ability of the business to continue to provide employment and the extent to provide employment and the extent to which it behaves in a socially which it behaves in a socially responsible mannerresponsible manner