Module 9

Basic Concepts

Objectives of Financial Reporting

The objectives of financial reporting are to provide:

  • Information that is useful to potential and existing investors, lenders, and other creditors
  • Information about the reporting entity's economic resources and claims against those resources
  • Changes in economic resources and claims
  • Financial performance reflected by accrual accounting
  • Financial performance reflected by past cash flow
  • Changes in economic resources and claims not resulting from financial performance

Financial statements are designed to meet the objectives of financial reporting:

Balance Sheet Direct Information Financial Position
Statement of Earnings and Comprehensive Income Direct Information Entity Performance
Statement of Cash Flows Direct Information Entity Cash Flows
Financial Statements Taken as a Whole Indirect Information Management and Performance

Qualitative Characteristics of Accounting Information

image

IFRS® and U.S. Conceptual Framework as Converged

Fundamental Characteristics/Decision Usefulness Enhancing Characteristics
Relevance Comparability
Predictive value Verifiability
Feedback value Timeliness
Materiality Understandability
Faithful Representation Constraints
Completeness Benefit versus costs
Neutrality
Free from error

Private Company Standards

Private company—“an entity other than a public business ...

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