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![](/i/favi32.png) Financial Accounting for Decision Makersfinancial-accounting-for-decision-makers-ninthnbsped-9781292251356-1292251352 compress4
CHAPTER 1
INTRODUCTION TO ACCOUNTING
THE CONFLICTING INTERESTS OF USERS
We have just seen that each user group will have its own particular interests. There is always
a risk, however, that the interests of the various user groups will collide. The distribution of
business wealth provides the most likely area for collisions to take place. Take, for example,
the position of owners and managers. Although managers are appointed to act in the best
interests of the owners, they may not always do so. Instead, they may use the wealth of the
business to award themselves large pay rises, to furnish large offices or to buy expensive cars
for their own use. Accounting can play an important role in monitoring and reporting how
various groups benefit from the business. Owners may, therefore, rely on accounting informa-
tion to see whether pay and benefits received by managers are appropriate and are in line
with agreed policies.
There is also a potential collision of interest between lenders and owners. Funds loaned to
a business, for example, may not be used for their intended purpose. They may be withdrawn
by the owners for their own use rather than used to expand the business as agreed. Thus,
lenders may rely on accounting information to see whether the owners have kept to the terms
of the loan agreement.
Can you think of
two
other examples where accounting information may be relied upon
by a user group to check whether the distribution of business wealth is appropriate and/
or in accordance with particular agreements?
Two possible examples that spring to mind are:
■
employees wishing to check that they are receiving a ‘fair share’ of the wealth created
by the business and that managers are complying with agreed profit-sharing schemes;
■
governments wishing to check that the owners of a monopoly do not benefit from exces-
sive profits and that any pricing rules relating to the monopoly’s goods or services have
not been broken.
You may have thought of other examples.
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