The all important tax collections that government authorities perform are based on the financial statements of the companies which make them important for the Government (Watts 2003). Even the employees of the company, who are organized in the form of labor unions in many countries, use the financial statements to assess the company’s performance and negotiate for compensation and promotion with the management. Financial analysts and those on the media rely heavily on accurate financial reporting to forecast the future of companies and whether they are a good buy for investors.
Therefore it is very easy to see the tremendous role financial reporting plays in today’s business environment.
An indelible part of public limited companies is corporate governance which is linked strongly with financial reporting. This is basically the system employing which the companies are controlled and includes in it the interaction between and the responsibilities of senior management and the company’s board of directors. It is also the legal framework for management and monitoring of companies (Turnbull 1997).