The paper 'Accounting in Europe' is a great example of a Finance and Accounting Essay. Financial accounting is a major economic field of focus in countries such as Europe. The main role of this paper is to explore research by different authors regarding how capital providers utilize the existing information. According to the current conceptual framework, it is imperative for financial reports to cater to the needs of capital providers because they mostly use financial accounting information. However, these providers have had complaints that there is inadequate academic evidence that describes these user needs.
According to research, the main objective and role of most financial reports/ records are offering information regarding the financial position and performance in regards to a given enterprise, which is useful in making the consumers make effective economic decisions. To understand and explore some of the financial reports in Europe, this paper will introduce several capital providers with their economic ideas, and gather information used by each category of capital providers. Lastly, the paper will discuss the findings and conclusions in regard to the implication of our findings in creating a reliable conceptual framework. Heterogeneity amongst Capital Providers The research information that focuses on the needs of consumers/users precisely focuses on equity investors since they are crucial in the field of marketing and economics.
Research shows that equity investors play a major role in ensuring that the financial sector within the market is both stable and balanced. The European debt is twice compared to the equity market. This situation challenges European economists to conduct a study and find out why there is a high rate of equity debt in Europe.
However, this could be a positive thing since debts are recorded and are the main source of income for most Europe Firms. The main reason is that, when debts are paid, the financial ladder inclines to the right, which is for most firms and companies. Additionally, bank loans and other forms of credit are the main sources of financial aid for the European companies since they represent about 70% liabilities. Unfortunately, most researchers have focused their research on equity market participants, and this has diverted their attention.
Before reviewing any other literature source, it is advisable to establish how the contrasting claims can have an effect on the goals of capital owners. Information Usage Additionally, there is quite a difference that exists between equity and debt due to several features. For one, the basic feature that there is a limitation of debt provider’ s returns on both the downside and upside is a major contrast. On the other hand, equity returns only face constraints on the downside sector. As a result, different stakeholders face various risk profiles and from this, lenders, as well as bondholders, become sensitive to the downside risk compared to equity providers.
Hence, contrast may exist between the risks of both the debt holders and shareholders, especially when the latter (stakeholders) and directors desire to maximize the value of their equity instead of the company’ s value. Also, the contrasting differences may cause conflicts to arise between these parties. In this case, for self-protection, debt holders come up with high-interest rates than their competitors to ensure they anticipate for such risks. On the other hand, shareholders protect themselves by introducing certain agreements into the debt contracts.
Using these measures, both the debt and shareholders protect themselves from any financial risks that may arise.
Armstrong, C. S., Guay, W. R., and Weber, J. P. (2010).The role of information and financial reporting in corporate governance and debt contracting. Journal of Accounting and Economics, 50(2), 179-234.
Barker, R. G. (1998).The market for information-evidence from finance directors, analysts, and fund managers. Accounting and Business Research, 29(1), 3-20.