2.3 Objectives of general purpose financial reporting

Question 1

According to the IASB, what is the objective of financial reporting?

Answer 1

To provide financial information about the reporting entity that is useful to present and potential equity investors, lenders and other users in making decisions about providing resources to the entity.

Question 2

What are some examples of external users of financial statements?

Answer 2

Creditors, customers, investors, governments and their agencies, lenders and the public.

Question 3

What are some examples of internal users of financial statements?

Answer 3

Employees, managers, lenders, suppliers and trade creditors.

Question 4

How do financial statements help investors?

Answer 4

To decide about buying, holding or selling shares.

Question 5

How do financial statements help employees?

Answer 5

Help with understanding the companies prospects, particularly around job security and salary growth.

Question 6

How do financial statements help managers?

Answer 6

Company performance is often linked to manager effectiveness, and can be used in performance reviews and for determining bonuses etc.

Question 7

How do financial statements help lenders?

Answer 7

By informing decisions on whether to lend to the company, and to determine the level of financial restrictions (such as debt ratios) as appropriate.

Question 8

How do financial statements help governments and their agencies?

Answer 8

Determining compliance with tax and company law, determining tax liabilities etc. Also for formulating policy and regulations, including taxation policy.

Question 9

How do financial statements help the general public?

Answer 9

Many reasons, largely around researching companies and their prospects.