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CHAPTER 1 OBJECTIVES OF FINANCIAL REPORTING

Chapter 1 of CFAS at Ateneo de Davao University outlines the objectives and usefulness of general purpose financial reporting, emphasizing the importance of providing financial information that aids users in decision-making regarding resource provision. It discusses the need for information about an entity's economic resources, claims, and changes therein, as well as the role of financial performance in assessing management's stewardship. The chapter also identifies primary and other users of financial information and highlights the significance of understanding both accrual accounting and past cash flows in evaluating financial performance.

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4 views

CHAPTER 1 OBJECTIVES OF FINANCIAL REPORTING

Chapter 1 of CFAS at Ateneo de Davao University outlines the objectives and usefulness of general purpose financial reporting, emphasizing the importance of providing financial information that aids users in decision-making regarding resource provision. It discusses the need for information about an entity's economic resources, claims, and changes therein, as well as the role of financial performance in assessing management's stewardship. The chapter also identifies primary and other users of financial information and highlights the significance of understanding both accrual accounting and past cash flows in evaluating financial performance.

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OBJECTIVES OF Chapter 1 - CFAS

Ateneo de Davao University

FINANCIAL
REPORTING
Presented by
Expert Group 3
INTRODUCTION OBJECTIVE, USEFULNESS AND LIMITATIONS OF GENERAL PURPOSE
FINANCIAL REPORTING

INFORMATION ABOUT A REPORTING ENTITY'S ECONOMIC RESOURCES, CLAIMS AGAINST


THE ENTITY AND CHANGES IN RESOURCES AND CLAIMS

Cont
ECONOMIC RESOURCES AND CLAIMS

CHANGES IN ECONOMIC RESOURCES AND CLAIMS

ents
FINANCIAL PERFORMANCE REFLECTED BY ACCRUAL ACCOUNTING

FINANCIAL PERFORMANCE REFLECTED BY PAST CASH FLOWS

CHANGES IN ECONOMIC RESOURCES AND CLAIMS NOT RESULTING FROM FINANCIAL


PERFORMANCE

INFORMATION ABOUT THE USE OF ENTITY’S ECONOMIC RESOURCES


Introduction
The objective of general purpose financial
CHAPTER 1 - CFAS

reporting forms the foundation of the Conceptual


Framework. Other aspects of the Conceptual
Framework--the qualitative characteristics of, and
the cost constraint on, useful financial information,
a reporting entity concept, elements of financial
statements, recognition and derecognition,
measurement, presentation and disclosure--flow
logically from the objective,
Objective of Financial Reporting
To provide financial information that is useful to users in making decisions
relating to providing resources to the entity.

User’s decision involve:

Buying, selling or Providing or setting Voting or otherwise


holding equity or debt loans and other forms influencing
instruments of credit management’s actions

To make these decisions, users assess:

Prospects for future net Management’s stewardship


cash inflows to the of the entity’s economic
entity resources
Objective of Financial Reporting
To provide financial information that is useful to users in making decisions
relating to providing resources to the entity.

To make both these assessments, users need information about both:

The entity’s economic resources,


claims against the entity and
changes in those resources and
claims
How efficiently and effectively
management has discharged its
responsibilities to use the entity’s
econic resources
USERS OF FINANCIAL INFO
PRIMARY USERS OTHER USERS

Existing potential investors Employees


Lenders and other Customers
creditors Government and their
agencies
Public
Objective of Financial Reporting
To provide financial information that is useful to users in making decisions
relating to providing resources to the entity.

User’s decision involve:

Buying, selling or Providing or setting Voting or otherwise


holding equity or debt loans and other forms influencing
instruments of credit management’s actions

To make these decisions, users assess:

Prospects for future net Management’s stewardship


cash inflows to the of the entity’s economic
entity resources
Objective of Financial Reporting
To provide financial information that is useful to users in making decisions
relating to providing resources to the entity.

To make both these assessments, users need information about both:

The entity’s economic resources,


claims against the entity and
changes in those resources and
claims
How efficiently and effectively
management has discharged its
responsibilities to use the entity’s
economic resources
ENTITY’S ECONOMIC
RESOURCES AND CLAIMS
- Help users to identify the entity's financial strengths and weaknesses

- Help users to assess management's stewardship of the entity’s economic resources

- To assess liquidity and solvency and its need for additional financingof the
entity’s economic resources

- How successful the entity to obtain financing

- Assists users to predict how future cash flows will be distributed among
those with a claim on the reporting entity.
CHANGES IN ECONOMIC
RESOURCES AND CLAIMS
- result from that entity's financial performance and from other events or
transactions such as issuing debt or equity instruments.
o Understand the return that the entity has produced on the
economic resources
o Past performance is helpful in predicting future returns
o Performance during the period is useful in assessing the entity’s
ability to generate future
FINANCIAL PERFORMANCE REFLECTED BY
ACCRUAL ACCOUNTING
- Accrual Accounting: effects of transactions and other events and
circumstances on a reporting entity's economic resources and claims in the
periods in which those effects occur, even if the resulting cash receipts and
payments occur in a different period.

- Financial Performance: useful in assessing the entity's past and future


ability to generate net cash inflows; indicate the extent to which events such
as changes in market prices or interest rates have increased or decreased
FINANCIAL PERFORMANCE
REFLECTED BY PAST CASH FLOWS
- ability to generate future net cash inflows and to assess
management's stewardship of the entity's economic resources;
understand and entity’s operations, evaluate its financing and
investing activities, assess its liquidity or solvency, and interpret their
financial performance

o indicates how the entity obtains and spends cash, including


information about its borrowing and repayment of debt, cash
dividends to shareholders, etc.
CHANGES IN ECONOMIC RESOURCES AND
CLAIMS NOT RESULTING FROM FINANCIAL
PERFORMANCE
Other Events: issue of debt or equity instruments.
o to give users a complete understanding of the changes in the
reporting entity’s economic resources and claims and the
implications of it for its future financial performance.
INFORMATION ABOUT USE OF
THE ENTITY’S ECONOMIC
RESOURCES
- Information about how entity’s management
discharge their responsibilities to use the
economic resources help user’s assess
management stewardship
THANK YOU

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