The concept of fiduciary responsibility, in which managers are accountable primarily to owners of firms, is central to modern finance and auditing theory. In stakeholder theory, the owners of an organization, as well as customers, employees, financiers, and others, have interests that management should consider and protect. Freeman (1984) defines a stakeholder as “any group or individual who can affect or is affected by the achievement of the organization's objectives,” and individuals, groups, organizations, governments, and even the environment, may be stakeholders.
Students in an introductory AIS class often do not understand management's responsibility regarding financial statements, but quickly understand that preschool management decisions can affect many stakeholders. It is important that students recognize that financial reporting is a way for stakeholders to monitor the actions of management. As a consequence, preschool management is responsible for providing useful information for evaluation of preschool activities. To provide useful information, management implements...