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CF Objective of Financial Reporting

The document discusses the conceptual framework for financial reporting. It states that the conceptual framework provides an overall theoretical foundation for accounting and is intended to guide standard-setters, preparers, and users of financial information. It aims to assist these groups in preparing, presenting, and interpreting financial statements. The conceptual framework also helps the standard-setting body in developing new standards and revising existing ones. It defines key terms and concepts to promote consistency in financial reporting. While not overriding specific accounting standards, the conceptual framework provides guidance where no standard applies directly. The overall objective of financial reporting, according to the conceptual framework, is to provide useful information to investors, lenders and other creditors for decision making.

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400 views

CF Objective of Financial Reporting

The document discusses the conceptual framework for financial reporting. It states that the conceptual framework provides an overall theoretical foundation for accounting and is intended to guide standard-setters, preparers, and users of financial information. It aims to assist these groups in preparing, presenting, and interpreting financial statements. The conceptual framework also helps the standard-setting body in developing new standards and revising existing ones. It defines key terms and concepts to promote consistency in financial reporting. While not overriding specific accounting standards, the conceptual framework provides guidance where no standard applies directly. The overall objective of financial reporting, according to the conceptual framework, is to provide useful information to investors, lenders and other creditors for decision making.

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© © All Rights Reserved
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Conceptual Framework: Objective of financial reporting

Conceptual Framework for Financial Reporting


 Complete, comprehensive and single document promulgated by IASB
 Summary of the terms and concepts that underlie the preparation and presentation of financial statements for
external users.
 Attempt to provide an overall theoretical foundation for accounting.
 Intended to guide standard-setters, preparers and users of financial information in the preparation and
presentation of statements.
 Underlying theory for the development of accounting standards and revision of previously issued accounting
standards.
 Concerned with general purpose financial statements including consolidated financial statements.

Purpose of Conceptual Framework


 To assist users of financial statements in interpreting the information contained in the financial statements
 To provide information to those interested in the work of the FRSC in the formulation of PFRS.
 To assist preparers of financial statements in applying accounting standards.
 To assist the FRSC in developing accounting standards that will represent GAAP in the Philippines.
 To assist the FRSC in the review and adoption of existing international accounting standards.
 To assist auditors in forming an opinion as to whether financial statements conform with Philippine GAAP.
 To provide definitions of key terms and concepts.
 To assist accountants in selecting among alternative accounting and reporting standards.
 To assist IASB in the standard-setting process.

Authoritative status of Conceptual Framework


Nothing in the Conceptual Framework overrides any specific Philippine Financial Reporting Standard.
In the absence of a standard or an interpretation that specifically applies to a transaction, management
shall consider the applicability of the Conceptual Framework in developing and applying an accounting
policy that results in information that is relevant and reliable.

Characteristics:
o To enable the accountancy profession to solve more quickly emerging practical problems.
o To provide a foundation from which to build more useful financial accounting standards.

A soundly developed Conceptual Framework should:


Increase financial statement users’ understanding and confidence in financial reporting.
Enhance comparability of financial statements across entities.
Allow new and emerging practical problems to be solved more quickly.
“Primary users” of financial information
 Existing and potential investors
 Existing and potential lenders and other creditors

Other users of financial information


 Employees, customers, governments and their agencies, and the public.

Board of Directors- internal user of financial information

Investors- These users require information on risk and return on investment.

Lenders and other creditors- These users are intended in information that enables them to assess whether their
loans, the related interest thereon, and other amounts owing to them will be paid when due.

Customers- These users are interested in information about the continuance of an entity when they have a
long-term involvement with or are dependent on the entity.

Employees- These users are interested in information about the profitability and stability of an entity in order
to assess the ability of the entity to provide renumeration, retirement benefits and employment opportunities.

Governments and their agencies- These users are interested in information in order to regulate the activities of
an entity, determine taxation policies and provide a basis for national statistics.

Public- These users need information on trends and recent developments where an entity makes a substantial
contribution to the local economy providing employment and using local suppliers.

Objective of Financial Reporting


 Overall objective of financial reporting is to provide information about an entity that is useful to existing
and potential investors, lenders and other creditors in making decisions about providing resources to the
entity.
 Specific objectives:
o To provide information useful in making decisions about providing resources to the entity
o To provide information useful in assessing the cash flow prospects of the entity
o To provide information about entity resources, claims and changes in resources and claim

Financial Reporting- is the provision of financial information about an entity to external users that is useful to
them in making economic decisions and for accessing the effectiveness of the entity’s management.
 Financial reporting encompasses not only financial statements but also other information such as financial
highlights, summary of important financial figures, analysis of financial statements and significant ratios.
 Also include nonfinancial information such as description of major products and a listing of corporate
officers and directors.
……………

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