Finance in business refers to any activity which is concerned with the management of money whereas management refers to a broadly activity concerned with planning, controlling and administering of used the business, financial statements is essential in virtually all the firms because it is helpful during financial analysis ,it is believed that investors judge the merits of the investment and the comparability of investments before any allocation of capital is done, it builds the confidence of investors , the management of finance can be grouped into two section, that is the private and public finance, private can be individual firms or corporate financial activities whereas public finance implies to revenue and the disbursement of government funds and normally it is done by the central government.
However, the general purpose of financial reporting is to provide financial information report which further encourages the investors, lenders and other creditors in making decisions about providing resources, In this case, many existing and potential investors and lenders require report which also builds confidence during their service delivery.
The conceptual framework underlies the preparation and presentation of financial statements, it comprises of qualitative characteristics of useful financial information, recognition and measurement of the elements from which the financial statements are constructed and basically, the capital concepts and its maintenance,(Stickney, C.P.2007)
In order for anyone to meet the target objectives, financial statements are always prepared on the basis of accounting, here, accrual accounting depicts the transaction effects and the event circumstances surrounding the claims of economic resources. It accounts on the period of occurrence even if the cash receipts and payments occur in different period, this fundamental information about reporting the economic resources and incase the claims are to be made, provides a good base for assessing the future and the past of the company seeking assistance.
Moreover, financial statements are normally prepared purposely for an assumption of an entity and how it will foresee the effects of the future, the qualitative features are likely to be useful when seeking potential investors, lenders and other creditors who will be approached for funding .
On the other hand, measurement as commonly used in accounting implies to process of determining the monetary amounts at which the elements of the financial statements are to be recognized and thereafter it is narrowed down in a balance sheet.
Furthermore, financial management acts as a fundamental area which is directly formally functional part of personnel ,production and marketing departments, in other words ,it has multidimensional approach whereby its concepts are both macro and micro approach, it uses the economic equations like money value and discount factor which immensely contribute to finance and economic development sectors.( Barber and Lyon1997).
Also its scope entails production management which also forms a part of business concern, in these , it acts as an operational engine of any business enterprise because it helps to maximize multiple of money to make profit. It also influences the production performance of an enterprise. The manager should therefore be aware of operational process and the finance required for the production activities, thus he greatly relies on the information provided by the financial information.
In addition to this, finance manager should precisely evaluate the prerequisite requirement of manpower in virtually every department because the human resource needs wages salaries and even remuneration and other monetary benefits .
According to Bradshaw and Miller.(2007),Financial manager should also carefully evaluate the requirement of manpower in each department and allocate the finance to the human resource department in terms of wages, salary, remuneration, commission, bonus, pension and other monetary benefits to the human resource department that will ensure full realization of the companies objectives. Ultimately, the financial management is directly related with human resource management. Also ,effective procurement also utilize the knowledge of finance comparability since it leads to proper utilization of finance so as to maximizes profit and wealth.
The Financial Accounting Standards Board (FASB) emphasizes the comparability which implies to quality of information which assist the users to identify similarities existing between the two sets of economic subject ,a structure is always added to by mapping out the events of financial Statements.
It normally represented in an equation form, that is:
Financial statement =fi (economic events)
Where economic events fi ( ) stands for system unit firm i
A relevant financial statement is represented in structured manner and its form should be easily understood by the external user, it has the reports ranging from the company’s assets, liabilities and the general ownership ,in simple terms, it summarizes the company’s cash flow and particularly it is used in investing and in doing other financial activities. For expanded corporations, these statements might be difficult and complex because the information of items might be typically described In the balance sheet thus forms part of integral financial statements.
Owners and managers greatly rely on financial statements so that they can make appropriate decisions that might affect its continued operations, the analysis is used as part of the management especially in annual report which they give to the stakeholders,(Bhojraj and Oler,2003),
In the near future, there is need to make digital financial statements that is commonly used in banks so that can companies can too have easy access , it can be a structure which is readable format designed in a computer, these helps promote electronic market which will drive the economy to a global standard ,the government too can take the initiative by promoting transparency on how the public resource has been used. These will help reduce the case of the embezzlement of public funds.
However, though financial statements are perceived to be effective in the management of company’s accountings, it has limitations, for instance, it only discloses the historical information which does not consider changes in terms of fluctuations of price level ,value of the currency hence correct prediction for the future is not narrowed down, it also influences personal judgment which lead to an individual making his own manipulation while preparing the statements .it encourages biasness leading to inaccurate data, furthermore , the statements based on accounting concepts and conventions might sometimes be unrealistic due to difference in conditions and generally the changes in the economy. Financial statements too emphasizes only the monetary facts, for example the quantitative information and ignores qualitative information.