In Statement of Financial Accounting Concepts No. 1 . "Objectives of Financial Reporting by Business Enterprises," the Financial Accounting Standards Board presents the objectives of financial reporting. Required: Identify the three major objectives of financial reporting and explain the interrelationships that exist between these objectives
The three major objectives of financial reporting are:
1 . To provide information useful in investment, credit, and similar decisions.
2 . To provide information useful in assessing the amounts and timing of cash flows.
3 . To provide information about enterprise resources, claims to those resources, and changes in them.
The first objective is the most general and states that financial information must be useful in making decisions. The two subsequent objectives are progressively narrower in scope.
The second objective indicates that in order to be useful, information provided must assist users in determining the probability of receiving cash flows from the enterprise and the amounts and timing of these cash flows.
The third objective identifies the general nature of the information needed by users in assessing the prospects of cash flows occurring.
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