The Information Needs of Governments

The information needs of governments

To a greater or lesser degree, all Western governments intervene in the activities of business organizations in the process of managing what is known as a 'mixed economy', that is, an economic system consisting of both State-controlled and privately controlled business organizations. Government Agencies, such as Central Statistical Services, Ministries of Commerce, Industry, Employment etc., all collect information about the various aspects of the activities of business organizations. Much of this information is a direct output of the accounting system, for example, levels of sales activity, profits, investments, stocks, liquidity, dividend levels, proportion of profits absorbed by taxation etc. This information is very important in evolving policies for managing the economy.

Governments, in addition, can compel the disclosure of information which is not otherwise made available to the public, such as future investment plans, expected future profits and so on.

By and large, however, governments tend to expect accounting information to be presented in a uniform manner, so that the rules applying to accounting methods and the preparation of accounting reports for government use are the same as those which govern the nature of accounting information disclosed to investors and shareholders. If governments base policy decisions on accounting information which distorts the true position, it is evident that the ill-effects of such decisions will be widely felt. The failure to adjust for the effect of inflation, for example, not only gives an excessive view of company profits but may lead the government to believe that company profits are running at a sufficiently high level to enable firms to finance investments and provide an adequate return to shareholders. We may say, therefore, that all parties having an interest in business organizations should be concerned with the quality of the accounting information produced, as well as the relevance of that information to their own needs. It is for this reason that we devote an entire section of this website to a thorough examination of the conventions which govern the nature of financial accounting information.

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Read on: The Information Needs of Employees

The information needs of employees

It is a popular view that the interests of employees are in direct conflict with those of the firm, and in particular with those of management. Unless employees are able to share in the profits of business organizations, they are effectively dissociated from their activities if we suppose that the objective of business organizations is to maximize profits and maximize returns, to shareholders. This classical concept of the objective of business enterprises is being replaced as a result of the social changes taking place in our society, and there is a broadening... see: The Information Needs of Employees