Types of primary users
Companies are known to be associated with many transactions. These transactions occur daily in both private and public companies, and financial statements are prepared.This paper will focus on FASB staff assessment to answer how and why the user needs of private company financial statements differ from those of public company financial statements, how the benefit of cost considerations of financial reporting may be different between public and private companies. One of these significant factors is the number of primary users and their access to management. Another crucial factor is the investment strategies of primary users. The assessment will identify five significant factors, but two of the five will be mentioned in this research. In varying degrees, these two factors aim to differentiate the financial reporting considerations of public companies from those of private companies. Many primary users and investment strategies are different from publicly-traded companies.
There are various types of primary users; these include investors, lenders, and other creditors. This number does not vary significantly between companies in the public and private sectors. However, the number of each type of primary user may be small for private companies. Private companies often have fewer users who asses financial statements. These users have a more significant influence on preparers because theyhave a larger percentage of resources to private companies as compared to those who use public companies. As a result, those users found in the private company have access to management and also the ability to obtain information about financial statements throughout the year. That access creates less demand for interim financial statements. The financial statements are always available for auditing when necessary. Generally, restrictions are set on the sharing of financial information to individuals. In contrast, there are more users of financial statements in public companies with less economic leverage, and more restrictions are set on the ability to share selective financial information with those users. This move creates more demands on reports and interims.
Those users that rely on private company financial statements have little access to public markets, and this prevents them from exiting the market before their term is over. This access can only occur if the conditions are well defined and exist. Private company lenders and investors have little ability to make changes to the interims in the value of their claims in the firm. As a result, users of private company financial statements end up having a more significant focus on money that can be drawn from their investments. Such cash returns include sharing of interests, dividends, possible buyouts, business combinations, and public offerings. These sources of investment returns can also be looked for by Investors and lenders in public companies. Investors and lenders also can cause immediate changes in securities value in a company. They can do this through the sale of these securities in open markets.
In conclusion, the two factors are suitable for the show accounting difference between private and public companies. There are various types of users found in companies. Their number varies according to the kind of company the primary users are in. The number of primary users in a firm determines the ability of those employees to access the management. Few employees found in private sector companies imply that this staff has to access the company’s financial statements. Those primary users in public companies have less or no access to financial statements. Investment strategies are adapted to make sure that restrictions are put to avoid future inconveniences. Such drawbacks include the sale of securities and users exiting the market before their term of the contract is over.