Final answer:
General purpose financial statements serve a wide external audience providing a transparent and standardized overview of a company's financial health. They are critical for external users like investors and bondholders who rely on comprehensive data rather than personal knowledge of business managers.
Step-by-step explanation:
Financial statements intended for external users are most accurately described as general purpose. Unlike managerial reports or special-purpose statements that are designed for a specific audience or internal use, general purpose financial statements provide a broad array of information suitable for a wide range of users. These users can include investors, creditors, and regulatory agencies who require a comprehensive understanding of a company's financial health and performance, but who do not have the ability to demand custom-tailored reports.
The purpose of general purpose financial statements is to offer an objective snapshot of a company's financial position, performance, and cash flows without bias or subjective analysis. This provides a level of transparency and standardization, making it possible for external users who are not personally acquainted with the firm's managers or in-depth business plans to make informed decisions based on reliable and comparable data. They typically include balance sheets, income statements, and cash flow statements, enriched with statistics and notes to accounts for a clearer insight.
As companies grow and their strategies start yielding profits, the reliance on personal knowledge of managers' plans diminishes. Broadly available information on a company's products, revenues, costs, and profits takes precedence. This shift underscores the value of general purpose financial statements for investors like bondholders and shareholders, who bestow financial capital without detailed personal insights into the firm's day-to-day management.