Answer
a.
Entities use financial reporting to inform various users about their financial situations. The financial information incorporated in the financial reports enables the lenders to decide whether they will offer loans to the reporting entities. Similarly, equity investors rely on financial information when determining whether to invest in entities. Lenders offer loans to entities after evaluating the entities' financial reports.
b.
Users of financial statements categorized as general-purpose expect the financial details to offer reasonable and appropriate details concerning the overall financial performance of an entity. Such users include shareholders and suppliers, among others.
Creditors should be furnished with information that shows an entity's prospect to yield positive cash flows.
Equity investors require information that displays expertise in guarding an entity's assets and investments.
Work Step by Step
a.Financial reporting is intended to aid external stakeholders when making essential judgments.
b.Financial statements should deliver discernible information that answers the users’ questions.
