Question

How could a financial information system be beneficial to a business with respect to strategic financial management

Answer 1

Answer: Financial information system is beneficial to a business with respect to strategic financial management in such a way:

- Accounting standards improve the liability and credibility of Financial statements: There are numerous parties which are interested in accounting information of an enterprise. They include investors management, creditors, employees, Govt. officials, researchers etc. Accounting standards generate confidence among the users of the accounting information by providing a definite structure of uniform guidelines which enhance the reliability and credibility of the accounting information.

- Accounting standards ensures the consistency and comparability of Financial statements: Accounting standards make the financial statement of different enterprises or of the same enterprise for different accounting periods comparable. In the absence of accounting standards, comparison of different financial statements may lead to wrong conclusions because each enterprise would evolve its own rules to suit its purpose.

- Accounting Standards help in resolving conflict of financial interest among various groups: For example, shareholder and creditors may have opposite interest in assessing the profitability and net worth of an enterprise.

- Accounting standards significantly reduce the chances of manipulation and fraud: Adoption of accounting standards in the preparation of financial statements has reduced the chance of manipulations fraud in sufficient disclosure or the use of inappropriate accounting policies.

- Helpful of Auditors: By using the financial statement auditors will be free from court cases and various penal provisions under the company law in case of inducted frauds, insufficient disclosures or due to adoption of inappropriate accounting policies.