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About this sample
About this sample
Words: 745 |
Pages: 2|
4 min read
Published: Jan 15, 2019
Words: 745|Pages: 2|4 min read
Published: Jan 15, 2019
The objective of a general purpose financial statements is to provide financial information about the reporting entity that is useful to present or potential investors and creditors in making decisions in their capacity as capital providers. Also, the objective of financial statements is focused on meeting the information needs of the primary user group. The primary user group is made up of those who have a claim (or potentially may have a claim) on an entity’s resources – its present and potential equity investors, lenders, and other creditors (capital providers).
According to the IASB Framework, the three main users group of financial statements and their purpose to use financial statements as below:
The primary user group is interested in financial information because information is useful in making decisions that the primary user group can make in their capacity as capital providers.
The decisions made by capital providers include whether and how to allocate their resources to a particular entity and how to protect or enhance their holdings. When making these decisions, capital providers are interested in assessing an entity’s ability to generate net cash inflows and management’s stewardship. Capital providers use information about an entity’s resources, claims to those resources, and changes in resources and claims as inputs into the decision-making process.
Though not mentioned by the IASB Framework, other users like employees, customers, governments and their agencies and the public. Their information needs include the following:
While all the information needs of these users cannot be met by financial statements, there are needs which are common to all users. As investors are providers of risk capital to the entity, the publication of financial statements that meet their needs will also meet most of the needs of other users.
It is unlikely that one piece of information, such as a single profit figure, will meet all of the wide variety of needs which financial accounting is meant to satisfy. For example, it is not necessary that the measure of profit used for tax purposes should be the same as that used for setting an upper limit to the dividends which can be distributed to shareholders: the fact that taxable profit and distributable profit differ under current British legislation is evidence of this.
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