An Introduction to Professional Training

Users of Financial Statements – Worldwide and U.A.E. perspective

As auditors, our basic job is to provide assurance as to the fair presentation of financial statements to various users. The users of financial statements and
their information needs are summarized below:

Investors
They are providers of capital and are therefore interested in information to enable them to arrive at decisions regarding buying or selling shares, taking up rights issue and voting etc.

Employees
Employees need information about security of employment and future prospects for jobs in the company, and to help with collective pay bargaining.

Lenders
Lenders basically need information to help them decide whether to lend to a company. This information would generally be regarding the liquidity, solvency and profitability of the company which would in turn help evaluate the security of the lending.

Suppliers
They need to know whether the company will be a good customer and will pay its debts in time.

Customers
Customers are interested in knowing whether the company will be able to continue producing and supplying goods.

Governments
Governments need to insure compliance with tax and company law, ability to pay tax and the general contribution of the company to the economy.

Financial Decision Making

The reason for making decisions based on financial statements is that this is the only publicly available information.

The fact that financial statements have been audited provides the above users with reasonable assurance as to the reliability of the financial statements based on which their decision is to be made.

Based on the above it becomes imperative that the auditor is independent. 1

Due to the fact that most companies in the UAE are small and medium sized and are, in substance, “Partnerships”, therefore information is not publicly available and the users are limited to the equity participants and debt providers (mainly banks).

1 – Independence relates to the fact that the objectivity of an auditor should be beyond question in order to be able to form and express an unbiased opinion on the financial statements.