Accounting standards vary across national boundaries. As the chapter stated, a specific country's financial reporting standards are a function of its legal environment, customs, and social objectives. In addition, the primary source of capital for companies within a country influences the country's financial reporting standards.

Required:

Assume that there are two countries in the world. In the first country, Equity and, companies acquire capital through individual investors, who purchase equity shares on public stock ex- changes. Companies in the second country, Debtland, acquire their capital from a few large banks. Answer the following questions on the basis of your understanding of the differences in the financial reporting incentives of firms domiciled in Equity and versus Debt and.

1. Who are the primary users of companies’ financial reports?
2. What are the users concerned about when they assess companies’ financial reports?
3. What financial ratios might financial statement users in the two countries employ when examining companies economic performances?
4. How do the disclosure demands of Equityland financial statement users differ from those of Debtland users?