Financial reports allow the organization to communicate information about their performance to the "outside world". So, financial reports provide summarized information about an organization's transactions for external decision makers. (e.g. Investors). Financial reports can be used by employees and trade unions, government, creditors and lenders, customers, shareholders and investment analysts. All these users may need different statements of financial accounts but the most important statements which they need is the balance sheet, profit and loss account, cash flow account and the income statement.

The two main regulatory bodies of financial reporting are the "Law" and the "Accounting Profession" with the Accounting Standards Board usually known as ASB. In UK, most of the legislation related to the publishing of accounts is embodied in the Companies Act 1985 and 1989 which are concerned with the accounts of the limited liabi

3. Some points are too detailed and some of them are not sufficiently detailed so, makes it hard to obey.

As we argued before, an important role of the regulations is to increase the comparability of accounts by limiting the choice of alternative accounting methods and to supply standardized accounts. This standardization can be achieved only by uniform accounting practice. If all accounting methods were standardized, two organizations which began the year with same balance sheets and which made the same transactions during the year, they would report the same balance sheets and the same profit and loss account at the end of the year.

One if these disadvantages is the "Adverse Allocative Effects", this could occur if the ASB did not take into account of the economic consequences of the new standard or regulation they have issued. For example, additional costs could be imposed on preparers of accounts and suboptimal managerial decisions might be taken to avoid any reduction in earning or net assets.

There are four things that standards in financial reporting supply people using it. The first one is "Comparability"; financial statements must allow people to compare one company with another one and evaluate the management's performance without spending time and money adjusting them to a common format and common accounting treatments. It is essential that users of financial reports or investment decision makers be supplied with relevant and standard financial reports which have been regulated and hence standardized. The second thing that standards and regulations supply is called "Credibility". Because all this standards and regulations exist accountants have to treat every company in the same way. If the accountancy profession permitt

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