MAKING GOOD FINANCIAL DECISIONS ABOUT AN ORGANIZATION

Question: Financial accounting refers to the conveyance of information about an organization as a whole and is

most frequently directed to assisting outside decision makers. Is there any reason for a person who is employed

by a company to care about the financial accounting data reported about that organization? Why should an

employee in the marketing or personnel department of Company C be interested in the financial information that

it distributes?

Answer: As indicated, financial accounting is designed to portray the overall financial condition and prospects

of an organization. Every employee should be quite interested in assessing that information to judge future

employment prospects. A company that is doing well will possibly award larger pay raises or perhaps significant

end-of-year cash bonuses. A financially healthy organization can afford to hire new employees, buy additional

equipment, or pursue major new initiatives. Conversely, when a company is struggling and prospects are dim,

employees might anticipate layoffs, pay cuts, or reductions in resources.

Thus, although financial accounting information is often directed to outside decision makers, employees should

be vitally interested in the financial health of their own organization. No one wants to be clueless as to whether

their employer is headed for prosperity or bankruptcy. In reality, employees are often the most avid readers of the

financial accounting information distributed by their employers because the results can have such an immediate

and direct impact on their jobs and, hence, their lives.