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The Conceptual framework for financial reporting.
The objective of financial reporting is to provide financial information about the reporting entity (which means business) which is useful for both existing and potential investors, lenders and creditors that are making decisions about providing resources to the entity. (which means investing money into the business, resources could be anything lease, loan etc)
Decisions may involve buying, selling or holding equity (which means shares/capital) & debt instruments (which means loans), & providing or setting loans and other forms of credit.
Users of financial statements:
Existing and potential investors, lenders, suppliers, employees, trade unions, customers, competitors, government and government agencies, the public and managers.
Types of decisions that could be made from the financial statements?
* To see if the company will continue in the future?
* To see how much money can be paid to dividends?
* To see if the company is expanding or declining?
* To see if the company will be able to pay finance costs/ loan repayments.
*To access the value of security available to the lender.
* To decide whether or not to supply goods.
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Qualitative characteristics of useful financial information.
There are two types fundamental qualitative characteristics & enhancing qualitative characteristics.
Enhancing qualitative characteristics
Comparability - Identify and understand similarities and differences.
Verifiability - Helps assure users that information is faithfully represented.
Timeliness - Having information available for decision makers in time for capable of influencing decisions.
Understandability -Presented clearly
