Reasons & objectives of financial reporting

[Mukund]

Financial reporting- Accounting is the process of recording & reporting financial transaction including the origination of the transaction, its recognition, processing & summarisation in the financial statements

 Recording business transactions
 Analysing them in ledger accounts
 Summarising

Financial reporting- satisfies the needs of external user financial statements such as shareholders, banks, creditors etc. by assisting them to assess

 Financial position of entity at a certain moment
 Financial performance of entity during a period
 Changes in the financial position from one period to the next

[Mukund]

GET Me OFF (Remember mnemonic):confused:

 Government and their agencies
 Employees
 Trade relations
 Management
 Owners, shareholders and potential inventors
 Financial analysts, journalists, stock brokers etc.
 Finance providers, banks, etc.
:cool:

[Mukund]

Financial statement consist of
 Balance sheet
 Income statement
 Cash flow statement
 Statement of changes in equity
 Notes to the financial statements

Elements of Balance sheet
 Asset
 Liability
 Equity

Elements of income statements
 Income: total earning of company
 Expenses: total cost of the business

[Mukund]

Balance sheet as at 31 December --------- for company XX


.............................................$
Assets..................................X
Total.....................................X
Capital and liabilities
Capital...................................X
Proft......................................X
Liabilities................................X
Total....................................X

[Mukund]

Income statement for the year to 31 December ----------- for company XX

.............................................$
Income...................................X
Expenses (including taxes).........(X)
Profit / (Loss)...................X / (X)

[Mukund]

Regulatory system ensure that accountants produce financial statements which are comparable, consistent, accurate and easily understandable

Other reasons are to:
 Ensure truth and fairness of financial statements
 Produce clear and comparable information from financial statements
 Set uniform accounting standards international financial reporting standards

[kamran_bsh]

According to IAS
"The main objective of financial statements is to provide information about financial position,performance and cash flows of an entity that is usefull to wide range of people in making economic decissions."
Thus we can say that main objective of financial statements is to provide relevant information to stakeholders of a company that is why we study the various classes of stakeholders of a company.
The main users of financial statements can be remembered by following mnemonic"MEGIC OF PTCL"
M-Management(Requires the most detailed information)
E-Employees and trade unions(Concerns like job security & possible pay rises)
G-Govenment agencies(How the economy is performing & tax concerns)
I-Investors & Potential investors(Concerned with security of investment)
C-Customers
O-Owners & Shareholders
F-Financial analysts
P-Public
T-Trade payables
C-Competitors
L-Lenders
The information to these stakeholders is provided via following set of financial statements
-Statement of comprehensive income"income statement old name"
-Statement of financial position"Old name balance sheet"
-Statement of cash flows"Old name cash flow statement"
-Statement of changes in equity
-Notes
IMPORTANT Keep in mind that the above names of financial statements are according to latest isssue of IAS1.So make a habbit of usong these names because you are likely to encounter them in the June-2008 session.
Another important thing is that nature of information provided to The various group of stakeholders listed above is GENERAL purpose & NOT SPECIFIC PURPOSE.
GENERAL PURPOSE means information which can satisfy information needs of a wide group of users or which is intended to satisfy the information needs of a wide group of users.Contrary to it SPECIFIC PURPOSE information is that which is focussing on the information need of a specific user.
As the information contained in Financial statements is general purpose so it has one small draw back that it can not satisfy the needs of a specific group of stakeholder upto highest possible level.However, despite of it this information is of great utility.

[Acid]

Hi Kamran,

by PTCL you mean Pakistan Telecommunication limited??

Thanks for the memonic and information

Acid

[limit_to_infinity]

Financial reporting- Accounting is the process of recording & reporting financial transaction including the origination of the transaction, its recognition, processing & summarisation in the financial statements

 Recording business transactions
 Analysing them in ledger accounts
 Summarising

Financial reporting- satisfies the needs of external user financial statements such as shareholders, banks, creditors etc. by assisting them to assess

 Financial position of entity at a certain moment
 Financial performance of entity during a period
 Changes in the financial position from one period to the next

changes in financial performance is depicted by which component of financial statements?

[sunset_corniche]

changes in financial performance is depicted by which component of financial statements?

Income Statement shows the changes in financial performance of an organisation.

[kamran_bsh]

yes acid,PTCL means the same as you said,this is for the sake of easy learning:-)

[Mukund]

Material information for all the users of financial statements

IAS 1 changes the titles of financial statements as they will be used in IFRSs:

'balance sheet' will become 'statement of financial position'
'income statement' will become 'statement of comprehensive income'
'cash flow statement' will become 'statement of cash flows'.