Introduction
Stakeholders exert influence and are influenced when it comes to their performance and decision-making in a corporate governance context. These stakeholders range from investors to employees, creditors, and governing institutions with disparate concerns. As such, this article will examine how stakeholders, especially those tied to a company listed on the London Stock Exchange, exploit information revealed in published annual reports and accounts. The annual report and accounts are the complete document that showcases how the company performed in a particular year, its asset position, and plans for success. Businesses must comprehend the stakeholders’ relationships concerning this information to get through the complex financial arena. This section introduces the three learning outcomes on which this investigation draws, focusing on how economic and management accounting theories and practices inform and help build an effective organization that benefits all parties involved.
Financial and management accounting
Basic theory and practice
The company’s information system includes financial and management accounts that give vital information to internal and external parties. Primarily, financial accounting focuses on preparing and presenting a company’s financial information to external entities. This process is centered on the core financial statements: the statement of profit or loss, the idea of financial position, and the cash flow statement. In this context, the income statement, or view of profit or loss, is an itemized list of all revenues, expenditure items, and profits (or losses) made by a company in any given financial year. This shows its operating performance and profitability (Athanasakou et al., 2020). However, the statement of financial position (balance sheet) captures a firm’s financial picture over some time. It lists assets, liabilities, and stockholder equities, giving a complete picture of the company’s financial state. outflowThe cash flow statement depicts the intake and outflow of cash in the firm for a particular time and indicates the firm’s cash control and solvency.
Management accounting is closely connected to financial accounting but is targeted within and to aid managers in their decision-making process. It entails the ideas of cost behavior, budgeting, and performance evaluation. Management accounting relies on such words as variable cost, fixed cost, and contribution margin, all of which assist in developing long-term plans. Management accounting is for internal use and not external, like financial accounting. Nevertheless, they are symbiotic since managerial accountants use their data in their analysis.
This is because management accounting enables the decision-making process in an organization. It provides managers with budgetary controls, variance analysis, and performance indicators to allow them to make decisions that complement organizational objectives. Therefore, stakeholders need to know the fundamentals of financial and management accounting to understand how healthy a specific company is financially and how it moves strategically. Such information is crucial, as it is a basis for accounting processes’ importance to the business.
Generally speaking, financial and management accounting together depict a holistic picture of a firm’s financial statement required by various interested parties, from investors to executive directors.
Processes and benefits of financial and management accounting process for a business
Financial and management accounting provides the organization with relevant information on which sound decisions can be made, and they help the organization move forward.
Contribution to Informed Decision-Making
Through preparing critical financial statements, financial accounting presents a systematic method for communicating an organization’s financial results to external parties. The profit and loss account and the financial Statement of Financial Position are statements by most investors, creditors, and analysts to evaluate a company’s profitability, liquidity, and overall economic strength. The other thing is management accounting, which gives managers the necessary data for making managerial decisions within an organization. It provides managers with cost-volume-profit analysis and budgets, which are critical for making short-term decisions (Sebrina et al., 2023). Financial and managerial accounting plays a vital role in a business’s decision-making. Management accounting helps in providing real-time information required for direct decision-making, while financial accounting evaluates past performance as well as forecasting the financial outcome for the future.
Impact on Financial Health and Stability
A company’s stability can be measured by evaluating its financial accounting processes. For example, the statement of financial position summarizes a company’s ability to pay its debt since it shows the assets, liabilities, and equity for stakeholders to evaluate its solvency and liquidity. Management accounting facilitates long-term strategic planning, including forecasting financial trends, budgeting, and cost-cutting. Such an approach makes it easier for a company to survive in times of economic crisis and ensures its financial sustainability (Tijani and Adel, 2022). Communication of Financial Performance to Stakeholders: Transparency in reporting is one of the essential tenets of financial accounting, for it involves revealing to stakeholders the truthful and necessary details regarding the company’s successes. Consummate clarity in financial statements promotes investor, creditor, and market confidence. However, management accounting is not geared towards external audiences. Instead, it generates granular data on intra-departmental operational metrics. Such internal transparency helps external reporting earn investors’ trust and improve the company’s image.
Hence, the essence of financial and management accounting rests on the joint benefit these processes provide by equipping stakeholders with vital information for strategic decisions, ensuring financial stability, and providing clear disclosure regarding a company’s financial position. These mandatory provisions help sail within the competitive waves of the world market today.
Current Problems Facing the Accountancy Profession
Any accounting discipline cannot ignore the challenges of the modern business environment. These areas encompass several crucial questions that shape the industry and affect how firms present their financial data.
Technological Advancements
Modern technology has transformed how we carry out accounting activities, creating a new age characterized by speed and automation. Cloud computing, artificial intelligence, and blockchain are changing financial data recording, processing, and reporting. accountantsAutomation helps accountants concentrate on more essential functions like analysis and support for decision-making (Djumanova and Bobomurodov, 2021). Data analytics also add value to financial reports, where companies can draw valuable conclusions from numerous databases and improve decision-making.
The accounting profession is guided by rules and principles, which constantly change. These are the International Financial Reporting Standards (IFRS), which have been used to push for common accounting standards worldwide to harmonize financial reporting practices across borders. The shift demands businesses tweak their accounting methods to conform to established reporting principles and requirements. At the same time as this development, evolving national legal needs add another layer of complexity that requires an agile and flexible compliance approach.
Sustainability Reporting
socialThe demands of stakeholders for increased transparency and accountability towards environmental, social, and governance (ESG) are increasingly becoming relevant, especially in Europe and Scandinavia. Sustainability reporting has become an integral part of corporate disclosure. The financial report should include ESG measures that will give a complete picture of the company’s ethics and sustainability efforts (Dyson and Franklin, 2020). Companies’ sustainability activities are increasingly scrutinized by stakeholders such as investors and consumers, thereby imposing pressure on accounting practices’ financial and non-financial aspects. The modern-day problems emphasize how dynamic this discipline is. Accounting must stay current with current technologies and any regulatory developments associated with sustainability reporting. The accounting profession should be at the helm of technological advancements and regulatory and sustainability challenges facing businesses in a fast-paced world.
Therefore, to sum up, accounting is moving through terrain that is formed in its turn by technological changes to laws and the increasing importance of economic and social responsibility. The modern-day challenges in accounting and business compel accountants and companies to adapt to remain relevant and ensure stakeholder confidence.
Utilization of annual reports by stakeholders
The annual reports and accounts of companies on LSE are some of the most valuable resources for many stakeholders. These reports are essential for decision-making and appraisal (Bellucc, 2019).
Investors
Investors are a significant stakeholder group that relies heavily on annual reports to assess the business’s health. A detailed analysis of financial statements will help an investor learn about profitability, liquidity, and the general economic health of a company. Equipped with such knowledge, they can purchase and sell assets or keep them, depending on what is best for them. It also assists in making projections and carrying out the risk assessment necessary to invest in the company’s operations.to
Management
Internal stakeholders, especially management teams, also use annual reports to formulate strategic plans and allocate resources. They present an extensive picture of the company’s finances, allowing managers to be sure when making decisions on other projects or capital expenditures. Secondly, annual reporting helps assess the adequacy or otherwise of former strategies that sharpen future policies.
Creditors and Lenders
Annual reports provide vital information for creditors and lenders, such as banks and other financial institutions, about a company’s financial health and credibility. Because of this, these stakeholders can scrutinize financial records and decide whether to extend a loan or credit. Risk management relies on annual reports, which is the evaluation that creditors undertake to assess timely repayments and the likely financial risks the company can undergo.
Government and Regulatory Bodies
Annual reports are used by governmental departments and regulating authorities to ensure that they comply with financial reporting standards and legislation norms. The economic data contained in these reports is essential in helping to carry out appropriate tax assessments. Government organs also use annual reports to ensure that firms comply with standards of transparency, corporate governance, and financial accountability.
Employees
Internal stakeholders, like employees, use annual reports to understand their firm’s performance better. Some reporting systems contain data influencing employees’ notions about job security and benefits. Such a company is considered more stable and impacts employee confidence in the firm’s future viability and position.
Conclusion
This paper generally addresses the issue of the theory and practice of financial and management accounting. These emphasize a list of the critical ideas concerning financial and managerial accounting procedures applicable to a company. The annual report also supports accounting by ensuring accountability among stakeholders who conduct decision-making, strategic planning, and compliance verification annually. Quality decisions need informed accounting, sound financial stewardship, and meaningful stakeholder communication. Moreover, technological advancements, changing regulations, and sustainability reporting are anticipated to shape the accounting profession in the coming years. Therefore, there is a need for flexibility in accounting procedures to keep them relevant and successful amidst a turbulent economic environment.
References
Alsadan, A., 2022 The capital structure dynamics of firms listed on the London Stock Exchange’s Main Market and Alternative Investment Market The University of Liverpool (United Kingdom)
Athanasakou, V., Eugster, F., Schleicher, T., and Walker, M., 2020. Annual report narratives and the cost of equity capital: U.K. evidence of a U-shaped relationship European Accounting Review, 29(1), pp. 27–54.
Bellucci, M., Simoni, L., Acuti, D., and Manetti, G., 2019. Stakeholder engagement and dialogic accounting: empirical evidence in sustainability reporting Accounting, Auditing, and Accountability Journal, 32(5), pp. 1467–1499.
Djumanova, A.B., and Bobomurodov, N., 2021. Features of the organization of management accounting and its impact on enterprises Теория и практика современной науки, (9 (75)), pp.3-7.
Dyson, J. and Franklin, E. (2020) Accounting for non-accounting students (10th Ed.) Pearson Education Limited: Harlow
El-Haj, M., Alves, P., Rayson, P., Walker, M. and Young, S., 2020. Retrieving, classifying, and analyzing narrative commentary in unstructured (glossy) annual reports published as PDF files. Accounting and Business Research, 50(1), pp.6-34.
Sebrina, N., Taqwa, S., Afriyenti, M. and Septiari, D., 2023. Analysis of sustainability reporting quality and corporate social responsibility on companies listed on the Indonesia stock exchange. Cogent Business & Management, 10(1), p.2157975.
Tijani, A. and Adel, N., 2022. The Impact of Executive Characteristics on Company Policy and Performance: The Case of London Stock Exchange Listed Companies (FTSE100). Mathematical Statistician and Engineering Applications, 71(4), pp.1340-1358.
write