The main objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, creditors etc for enabling them to make deciscions in their capacity as providers of capital. The funadmental qualitative characterstics of reporting is relevance and faithful representation.
Other than this there are four enhancing qualitative characterstics, they are comparibility, verifiability, properness and understandability. In the meantime the two invasive constraints that restrict the information provided by financial reporting are materiality and cost. While mounting the standards, the qualititative characteristics will be considered, so that the information reported will be useful for the so called providers of capital (Frequently Asked Questions. IASB).
General purpose financial reporting is not an end in itself, but is a way of conversing pertinent and dependable information about a reporting body to user. Good reporting helps in the competent allotment limited resources, provides method to enable managements and governing bodies to release their accountability, measuring the performance of an entity in financial as well as non financial terms etc. General purpose financial reports shall reveal information pertinent to the appraisal of performance, financial position and financing and investing, including information about observance (Objective of General Purpose Financial Reporting.n.d.)
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The conceptual framework for financial reporting, institutes the ideas that lie behind financial reporting. The structure is a rational scheme of thoughts that stream from a purpose. The objective of financial reporting is the basis of the framework. The preceding perceptions offer supervision of the boundaries of financial reporting, choosing on the transactions, previous events and conditions to be signified, how they should be documented, and how they should be summarised and discussed in the fiscal reports.
Conceptual framework institutes the idea of general purpose financial reporting by businesses. Here the idea of financial reporting is the basis of the framework. Other features of the framework together with qualitative characteristics, elements of financial statements, definition of a reporting entity, recognition, measurement and presentation, disclosure etc flow logically from the idea.
The international accounting standard board’s directive is to help in effectual performance of economies and the well-organized allotment of capital in capital markets by budding high superiority financial reporting standards. This objective is related to financial reporting and is not merely confined to financial statements. The general purpose of financial reporting is directed to the requirements of a broad range of users rather than only to a single group. The information given by general purpose financial reporting centres on the requirements of all capital suppliers and is not confined to a group.
According to the new conceptual framework, financial reporting should provide information about the economic resources of an entity as well as the claims on those resources. Financial reporting should also provide information concerning the effects of dealings and erstwhile proceedings and conditions that change entities financial resources and the claim on those possessions. This information is very much constructive to the providers of capital for assessing the businesses capability to produce cash flows and for assessing the effectiveness with which organization has satisfied its stewardship responsibilities. Read also about s ources of accounting standards
The capital providers of a business is directly attracted in the amount, time, uncertainty and timing of cash flows from dividends, interest, redemption of loans etc.Cash flows help in making appropriate and accurate judgements (EXPOSURE DRAFT OF An improved Conceptual Framework for Financial Reporting. 2008.).
The reasons for developing a conceptual framework in financial reporting were to fulfil a common goal of the international accounting standards board. They emphasised that standards should be clearly based on consistent principles. For becoming reliable, principle should be entrenched in fundamental concepts rather than a compilation of conventions.
To constantly achieve useful financial reporting, the body of standards taken as a whole and the relevance of those standards should be based on a framework that is sound, complete and on the inside correct. Another general objective of the IASB is to meet their standards. The boards are more closely aligning their plans to achieve convergence in potential standards (Financial Accounting Series. 2008)
The principle of general-purpose financial reporting is to give information about the financial situation, financial presentation and cash flows of a body that is helpful to a large variety of users in creation of economic decisions.
The IASB undoubtedly recognize the wants of an exacting class of users that preparers should regard as when getting ready general-purpose financial reports. A lot of users have to depend on the financial report as their main resource of financial information and such financial reports must, therefore, be equipped and presented with their requirements in sight. The reports are supposed to provide decision-useful information to users of these reports.
From the efforts taken up by the IASB in developing the new conceptual framework in accounting standards, it can be understood that the new draft is definitely an improvement from the traditional GPFR’s. The needs, habits, attitudes and working atmosphere of business entities are changing, hence it is necessary to make prominent changes in the framework of accounting reporting thereby changes in this field can be accommodated and new challenges can be faced. Moreover to tackle the changing and dynamic business world, it is necessary for having a well equipped accounting reporting system, that caters to the needs of all sections of the business society.
The objectives conceived by the earlier GPFR and the new document are very much suitable for the changing business needs. The old document very well augmented the needs of the business class and the new document supplements the performance of GPFR system needed for the present business entities. The project's for developing the conceptual framework has an overall purpose to generate a sound foundation for future accounting standards that are principles-based, on the inside reliable and globally converged (Hughes.M, Read.A, Gordon.C.)
EXPOSURE DRAFT OF An improved Conceptual Framework for Financial Reporting. 2008. Accessed: September 26 2008.
Frequently Asked Questions. IASB.(online).n.d.Available:http://www.iasb.org/Current+Projects/IASB+Projects/Conceptual+Framework/Exposure+Draft+and+Comment+Letters++Phase+A/Frequently+Asked+Questions.htm. Accessed: September 26 2008.
Financial Accounting Series. 2008. (online). Available:http://www.fasb.org/draft/ed_conceptual_framework_for_fin_reporting.pdf. Accessed: September 26 2008.
Hughes.M, Read.A, Gordon.C. Concern for Second Tier Issues Mislead Standard Setters. (online).n.d.Available:http://www.afaanz.org/openconfafaanz2008/modules/request.php?module=oc_proceedings;action=view.php;a=Accept+as+Forum;id=339
Objective of General Purpose Financial Reporting. n.d. Statement of Accounting Concepts. Accessed: September 26 2008.
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