Financial Information: Context, Purpose and Ethical Requirements
Financial Information: Context, Purpose,
Qualitative Characteristics, and Ethical
Requirements
A Comprehensive Discussion within the Ghanaian Legal and Regulatory Framework
1. Introduction
Financial reporting constitutes a cornerstone of corporate governance, economic decisionmaking, and regulatory compliance. This discussion provides an in-depth analysis of these
issues, with particular emphasis on Ghana's legal and regulatory framework, supported by
relevant case law, statutory provisions, and academic literature.
2. Scope and Purpose of Financial Statements for External
Reporting
2.1 Conceptual Foundation
Financial statements for external reporting serve fundamentally different purposes from cost
and management accounting. The International Accounting Standards Board (IASB)
Conceptual Framework for Financial Reporting (2018) establishes that the objective of
general-purpose financial reporting is "to provide financial information about the reporting
entity that is useful to existing and potential investors, lenders and other creditors in making
decisions relating to providing resources to the entity" (IASB, 2018, para. 1.2).
2.2 Distinction from Cost and Management Accounting
External financial reporting differs from management accounting in several critical
dimensions:
External Financial Reporting:
• Prepared for external stakeholders (investors, creditors, regulators)
• Governed by statutory requirements and accounting standards
• Historical in nature
• Subject to independent audit
• Publicly available for listed companies
Cost and Management Accounting:
• Prepared for internal management use
• No statutory format requirements
• Forward-looking and decision-oriented
• Confidential and proprietary
• Flexible in presentation
Drury (2018) observes that "management accounting information is designed to help
managers make better decisions, whereas financial accounting information is designed to
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Financial Information: Context, Purpose and Ethical Requirements
meet the needs of external parties" (p. 7). This distinction is crucial for understanding the
regulatory emphasis placed on external reporting.
2.3 Ghanaian Statutory Context
In Ghana, the Companies Act, 2019 (Act 992) provides the primary statutory framework for
financial reporting. Section 123(1) mandates that:
"The directors of a company shall cause to be kept adequate accounting records
which are sufficient to show and explain the transactions of the company and are
such as to disclose with reasonable accuracy, at any time, the financial position of
the company at that time."
Section 128 further requires companies to prepare financial statements that give a "true and
fair view" of the state of affairs of the company and its profit or loss. This "true and fair
view" requirement represents a fundamental principle inherited from English common law
traditions and now codified in Ghanaian statute.
3. Users of Financial Statements and Their Information Needs
3.1 Stakeholder Theory and User Identification
The identification of financial statement users draws significantly from stakeholder theory,
articulated prominently by Freeman (1984), who defined stakeholders as "any group or
individual who can affect or is affected by the achievement of the organization's objectives"
(p. 46).
3.2 Categories of Users
The IASB Conceptual Framework identifies primary users as existing and potential investors,
lenders, and other creditors. However, a broader categorisation includes:
Primary Users:
1. Investors and Shareholders – require information for investment decisions, dividend
expectations, and stewardship assessment
2. Lenders and Creditors – assess creditworthiness, loan security, and repayment
capacity
3. Potential Investors – evaluate investment opportunities
Secondary Users:
1. Government and Regulatory Agencies – including the Ghana Revenue Authority
(GRA), Securities and Exchange Commission (SEC), and Bank of Ghana
2. Employees and Trade Unions – assess job security and wage negotiation positions
3. Suppliers and Trade Creditors – evaluate payment prospects
4. Customers – particularly for long-term contracts
5. The General Public – for economic and social accountability
3.3 Information Needs Analysis
User Group
Shareholders
Lenders
Primary Information Needs
Profitability, dividends, capital growth, management performance
Liquidity, solvency, cash flow adequacy, asset coverage
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Financial Information: Context, Purpose and Ethical Requirements
User Group
Tax Authorities
Employees
Regulators
Primary Information Needs
Taxable income, compliance with tax laws
Financial stability, ability to pay wages, pension obligations
Compliance, capital adequacy, systemic risk
In the Ghanaian context, the Ghana Revenue Authority Act, 2009 (Act 791) establishes the
GRA's authority to access financial information for tax assessment purposes. Section 31
empowers the Commissioner-General to require any person to furnish information relevant to
tax administration.
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Financial Information: Context, Purpose and Ethical Requirements
4. Regulatory Framework for Financial Reporting in Ghana
4.1 Legislative Framework
Ghana's financial reporting regulatory framework comprises multiple interconnected statutes:
4.1.1 Companies Act, 2019 (Act 992)
This Act represents the primary legislation governing corporate financial reporting. Key
provisions include:
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•
•
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Section 123: Duty to keep accounting records
Section 124: Location and inspection of accounting records
Section 128: Duty to prepare financial statements
Section 129: Contents of financial statements
Section 137: Requirement for audit (for companies above prescribed thresholds)
Section 129(2) specifically requires that financial statements shall be prepared "in accordance
with the Ghana National Accounting Standards or the International Financial Reporting
Standards."
4.1.2 Institute of Chartered Accountants (Ghana) Act, 1963 (Act 170)
This Act establishes the Institute of Chartered Accountants, Ghana (ICAG) as the body
responsible for regulating the accountancy profession. ICAG plays a crucial role in:
•
•
•
•
Setting professional standards
Disciplining errant members
Providing guidance on accounting practices
Adopting and adapting international standards for local application
4.1.3 Securities Industry Act, 2016 (Act 929)
For listed companies, this Act imposes additional reporting requirements. Section 70 requires
issuers to:
•
•
•
Prepare and publish annual reports
File periodic financial statements with the SEC
Ensure compliance with disclosure requirements
4.1.4 Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930)
Banking institutions face enhanced regulatory requirements under Bank of Ghana
supervision. Section 90 mandates that banks maintain accounting records and prepare
financial statements in accordance with:
•
•
International Financial Reporting Standards
Directives issued by the Bank of Ghana
4.2 Accounting Standards Framework
4.2.1 Adoption of IFRS in Ghana
Ghana officially adopted International Financial Reporting Standards (IFRS) for listed
companies and public interest entities from January 2007. The Institute of Chartered
Accountants, Ghana facilitated this transition, recognising the globalisation of financial
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markets and the need for comparable financial information (ICAG, 2007). The adoption
follows the "adoption approach" whereby IFRS as issued by the IASB are adopted without
modification, subject to local regulatory interpretation where necessary.
4.2.2 Relevance and Limitations of Accounting Standards
Relevance:
• Enhance comparability across entities and jurisdictions
• Provide consistent measurement and recognition criteria
• Facilitate international capital flows
• Reduce information asymmetry between preparers and users
Limitations:
• Principle-based standards require significant professional judgement
• Complex standards may be difficult to apply for smaller entities
• Standard-setting process may not always reflect local economic realities
• Cost of compliance can be substantial
Alexander and Nobes (2020) observe that "accounting standards cannot eliminate all
judgement and subjectivity in financial reporting" (p. 89), highlighting the inherent
limitations of even well-designed regulatory frameworks.
4.3 Case Law Perspectives
4.3.1 The "True and Fair View" Doctrine
The concept of "true and fair view" has been subject to judicial interpretation in common law
jurisdictions. In the English case of Re Press Caps Ltd [1949] Ch 434, the court established
that financial statements must present an accurate picture that would not mislead a reasonably
informed reader.
While Ghanaian courts have not extensively litigated accounting matters, the principle
established in Lloyd Cheyham & Co Ltd v Littlejohn & Co [1987] BCLC 303 is instructive.
Woolf J held that compliance with accounting standards constitutes strong prima facie
evidence of proper accounting treatment, though it does not guarantee compliance with the
true and fair requirement in all circumstances.
4.3.2 Auditor Liability
The landmark case of Caparo Industries plc v Dickman [1990] 2 AC 605 established
important principles regarding the duty of care owed by auditors. The House of Lords held
that auditors owe a duty to the company as a whole, not to individual shareholders or
potential investors making investment decisions. This principle has implications for
understanding the purpose and limitations of audited financial statements.
In Ghana, similar principles would apply under the tort of negligence, with courts likely to
follow persuasive English precedents given the shared common law heritage.
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Financial Information: Context, Purpose and Ethical Requirements
5. Main Elements of Financial Reports
5.1 Statutory Requirements
Under the Companies Act, 2019 (Act 992), Section 129(1) requires financial statements to
include:
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•
•
•
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Statement of financial position (balance sheet)
Statement of comprehensive income (income statement)
Statement of changes in equity
Statement of cash flows
Notes to the financial statements
5.2 IAS 1 Requirements
IAS 1 – Presentation of Financial Statements provides detailed guidance on the
components of a complete set of financial statements:
5.2.1 Statement of Financial Position
Presents the entity's assets, liabilities, and equity at a specific point in time. Classification
between current and non-current items is mandatory, providing information about liquidity
and solvency.
5.2.2 Statement of Profit or Loss and Other Comprehensive Income
May be presented as a single statement or two separate statements. Must include all items of
income and expense recognised in the period, distinguishing between:
•
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Profit or loss
Other comprehensive income (items that will or will not be reclassified to profit or
loss)
5.2.3 Statement of Changes in Equity
Shows the changes in each component of equity during the period, including:
•
•
•
Total comprehensive income
Transactions with owners (dividends, share issues)
Effects of changes in accounting policies
5.2.4 Statement of Cash Flows
Governed by IAS 7, this statement presents cash flows during the period classified into:
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Operating activities
Investing activities
Financing activities
5.2.5 Notes to the Financial Statements
Provide additional information including:
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Significant accounting policies
Sources of estimation uncertainty
Disaggregation of line items
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•
Contingent liabilities and commitments
5.3 Additional Reporting Requirements
For listed companies in Ghana, the SEC (Ghana) Corporate Governance Code, 2020
requires additional disclosures including:
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•
•
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Corporate governance statement
Directors' report
Audit committee report
Remuneration report
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6. Qualitative Characteristics of Financial Information
6.1 The IASB Conceptual Framework
The IASB Conceptual Framework for Financial Reporting (2018) identifies two categories of
qualitative characteristics.
6.2 Fundamental Qualitative Characteristics
6.2.1 Relevance
Information is relevant if it is capable of making a difference in decisions made by users.
Relevant information has:
•
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Predictive value: Can be used to predict future outcomes
Confirmatory value: Provides feedback about previous evaluations
Materiality is an entity-specific aspect of relevance—information is material if omitting or
misstating it could influence decisions that users make based on financial information.
6.2.2 Faithful Representation
Financial information must faithfully represent the economic phenomena it purports to
represent. Faithful representation requires information to be:
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Complete: Including all information necessary for understanding
Neutral: Free from bias in selection or presentation
Free from error: No errors or omissions in the description of the phenomenon
6.3 Enhancing Qualitative Characteristics
6.3.1 Comparability
Enables users to identify similarities and differences between items. Requires:
•
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Consistency in accounting methods within an entity over time
Consistency across entities to enable benchmarking
6.3.2 Verifiability
Different knowledgeable and independent observers could reach consensus that a particular
depiction is a faithful representation.
6.3.3 Timeliness
Having information available to decision-makers in time to be capable of influencing their
decisions.
6.3.4 Understandability
Classifying, characterising, and presenting information clearly and concisely makes it
understandable. Financial reports are prepared for users who have reasonable knowledge of
business and economic activities.
6.4 Academic Perspectives
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Hendriksen and Van Breda (1992) argue that "qualitative characteristics are the attributes that
make the information in financial statements useful to users" (p. 132). They emphasise that
these characteristics exist on a continuum and often involve trade-offs.
Barth (2008) observes that the move towards fair value accounting under IFRS reflects a
prioritisation of relevance, potentially at the expense of reliability (faithful representation),
highlighting the tensions inherent in achieving all qualitative characteristics simultaneously.
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7. Ethical Behaviour in Accounting and Financial Reporting
7.1 Theoretical Foundation
Ethics in accounting encompasses the moral principles and values that guide professional
conduct in the preparation and presentation of financial information. The importance of ethics
in accounting cannot be overstated—accounting scandals such as Enron, WorldCom, and
more locally, various banking sector collapses in Ghana, demonstrate the devastating
consequences of ethical failures.
Duska et al. (2011) note that "the accounting profession exists because society has entrusted
it with the important task of providing reliable financial information" (p. 3). This trust
relationship creates special ethical obligations.
7.2 Professional Ethics Framework
7.2.1 IESBA Code of Ethics
The International Ethics Standards Board for Accountants (IESBA) Code of Ethics, adopted
by ICAG, establishes five fundamental principles:
1. Integrity: Being straightforward and honest in all professional and business
relationships
2. Objectivity: Not allowing bias, conflict of interest, or undue influence to override
professional judgments
3. Professional Competence and Due Care: Maintaining professional knowledge and
skill; acting diligently
4. Confidentiality: Respecting the confidentiality of information acquired through
professional relationships
5. Professional Behaviour: Complying with relevant laws and regulations and avoiding
actions that discredit the profession
7.2.2 Threats to Compliance
The Code identifies categories of threats to compliance with fundamental principles:
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Self-interest threats
Self-review threats
Advocacy threats
Familiarity threats
Intimidation threats
7.3 Legal Requirements in Ghana
7.3.1 Criminal Liability
The Companies Act, 2019 (Act 992) imposes criminal sanctions for accounting fraud.
Section 251 provides that a person who:
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•
Makes or authorises false or misleading statements in documents required by the Act
Omits or authorises omission of material particulars
commits an offence and is liable on summary conviction to a fine or imprisonment.
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7.3.2 Civil Liability
Directors and officers may face civil liability for breach of fiduciary duties where financial
statements are prepared negligently or fraudulently. Section 190 of Act 992 establishes
directors' duty to act with care, skill, and diligence.
7.3.3 Professional Disciplinary Proceedings
The Institute of Chartered Accountants, Ghana exercises disciplinary authority over members
under Act 170. The Disciplinary Committee may:
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Reprimand members
Impose fines
Suspend membership
Remove members from the register
7.4 Case Law on Professional Ethics
7.4.1 Kingston Cotton Mill Co (No. 2) [1896] 2 Ch 279
This foundational case established that auditors are not required to approach their work with
suspicion or with a foregone conclusion that there is something wrong. Lopes LJ famously
stated that an auditor "is a watchdog, but not a bloodhound." However, subsequent
developments have raised expectations of auditors.
7.4.2 AWA Ltd v Daniels (1992) 7 ACSR 759
The New South Wales Supreme Court held that auditors must exercise reasonable care and
skill, taking into account modern expectations and professional standards. This case reflects
the evolution of auditor responsibilities in response to corporate scandals.
7.5 Ethical Challenges in Practice
Practitioners face numerous ethical challenges including:
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Pressure from management to manipulate earnings
Conflicts between professional obligations and employment relationships
Complex transactions designed to achieve particular accounting outcomes
Tight reporting deadlines compromising thoroughness
Merchant and Van der Stede (2017) identify "earnings management" as a pervasive ethical
issue, where management uses discretion in financial reporting to achieve desired results.
While some degree of judgement is inherent in accounting, crossing into manipulation
violates ethical principles.
7.6 The Ghana Banking Sector Crisis
The 2017-2019 banking sector crisis in Ghana provides a sobering illustration of accounting
and ethical failures. The Bank of Ghana revoked the licences of nine banks and several
microfinance institutions due to, among other factors:
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Inadequate capital (often based on unreliable financial statements)
Misrepresentation of financial position
Poor corporate governance
Non-performing loans understated or improperly classified
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The Receiver's reports revealed systematic failures in financial reporting integrity,
underscoring the critical importance of ethical behaviour in accounting and financial
reporting.
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8. Conclusion
Financial reporting serves as the primary mechanism through which entities communicate
their financial position and performance to external stakeholders. The effectiveness of this
communication depends on robust regulatory frameworks, adherence to high-quality
accounting standards, and unwavering commitment to ethical principles.
In Ghana, the regulatory architecture comprising the Companies Act, 2019 (Act 992), the
professional oversight of ICAG, and the adoption of International Financial Reporting
Standards provides a sound foundation for financial reporting. However, as the banking
sector crisis demonstrated, regulatory frameworks are only as effective as the ethical
commitment of those who operate within them.
The qualitative characteristics articulated in the IASB Conceptual Framework provide
essential guidance for preparers seeking to produce useful financial information. Balancing
relevance with faithful representation, while enhancing comparability, verifiability,
timeliness, and understandability, requires both technical competence and ethical
commitment.
Ultimately, the integrity of financial reporting systems depends on professionals who
understand their obligations to the public interest and consistently act in accordance with the
highest ethical standards.
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References
Alexander, D., & Nobes, C. (2020). Financial accounting: An international introduction (7th
ed.). Pearson Education.
Barth, M. E. (2008). Global financial reporting: Implications for U.S. academics. The
Accounting Review, 83(5), 1159-1179. https://doi.org/10.2308/accr.2008.83.5.1159
Drury, C. (2018). Management and cost accounting (10th ed.). Cengage Learning.
Duska, R. F., Duska, B. S., & Ragatz, J. A. (2011). Accounting ethics (2nd ed.). WileyBlackwell.
Freeman, R. E. (1984). Strategic management: A stakeholder approach. Pitman.
Hendriksen, E. S., & Van Breda, M. F. (1992). Accounting theory (5th ed.). Irwin.
Institute of Chartered Accountants, Ghana. (2007). Ghana National Accounting Standards.
ICAG.
International Accounting Standards Board. (2018). Conceptual framework for financial
reporting. IFRS Foundation.
International Ethics Standards Board for Accountants. (2018). Handbook of the international
code of ethics for professional accountants. IFAC.
Merchant, K. A., & Van der Stede, W. A. (2017). Management control systems: Performance
measurement, evaluation and incentives (4th ed.). Pearson Education.
Statutes
Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930) (Ghana).
Companies Act, 2019 (Act 992) (Ghana).
Ghana Revenue Authority Act, 2009 (Act 791) (Ghana).
Institute of Chartered Accountants (Ghana) Act, 1963 (Act 170) (Ghana).
Securities Industry Act, 2016 (Act 929) (Ghana).
Case Law
AWA Ltd v Daniels (1992) 7 ACSR 759.
Caparo Industries plc v Dickman [1990] 2 AC 605.
Kingston Cotton Mill Co (No. 2) [1896] 2 Ch 279.
Lloyd Cheyham & Co Ltd v Littlejohn & Co [1987] BCLC 303.
Re Press Caps Ltd [1949] Ch 434.
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