What are the financial reporting objectives?

Answer 1

FINANCIAL REPORTING OBJECTIVES

Financial reporting objectives speak to the purpose of financial reports and the primary users and uses of those reports. The FASB's conceptual framework lists the following as financial reporting objectives.1 Financial reporting should accomplish the following:

1 . Provide information useful for making rational investment and credit decisions.

2 . Provide information to help current and potential investors and creditors assess the
amount, timing, and uncertainty of future cash flows.

3 . Provide information about the economic resources of a firm and the claims on those
resources.

4 . Provide information about a firm's operating performance during a period.

5 . Provide information about how an enterprise obtains and uses cash.

6 . Provide information about how management has discharged its stewardship responsibility
to owners.

7 . Include explanations and interpretations to help users understand the financial information
provided.

These financial reporting objectives identify current and potential investors and creditors as the principal users of financial reports and the provision of information to make investment and credit decisions as the principal purpose of financial reports. The remaining objectives describe the need for a balance sheet, an income statement, a statement of cash flows, notes to the financial statements, and management's discussion of information in the financial statements and notes. The financial reporting objectives in the IASB's conceptual framework resemble those of the FASB framework.

The FASB and IASB are working jointly to develop a revised, coordinated set of financial
reporting objectives. They envision the primary user groups as present and potential providers of resources, including equity investors and creditors. The users want information useful for making resource allocation decisions and for making decisions about protecting and enhancing their investments. The proposed reporting objectives would also specify that firms should prepare financial reports from the perspective of the reporting entity (entity perspective), rather than from the perspective of its owners or a particular class of owners (proprietary
perspective). Although the reporting objectives of U.S. GAAP and IFRS recognize that the user group is broader than just shareholders, some accounting standards, particularly those related to consolidated financial statements, have historically taken a proprietary perspective
instead of an entity perspective.