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THE CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING
1 INTRODUCTION
The Conceptual Framework sets out the concepts that underlie the preparation and presentation of financial statements for external users [Conceptual Framework, Section “Purpose and status”]. The relationship between the Conceptual Framework and individual IFRSs can be described as follows.
- In the absence of regulation, management has to develop an accounting policy. That accounting policy has to be compatible with the Conceptual Framework if there are no requirements in IFRSs which deal with similar and related issues [IAS 8.11].
- In a limited number of cases, there may be a conflict between the Conceptual Framework and the requirements of an IFRS. In such cases, the requirements of the IFRS prevail over those of the Conceptual Framework [Conceptual Framework, Section “Purpose and status”].
2 THE OBJECTIVE OF GENERAL PURPOSE FINANCIAL REPORTING
The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity [e.g. providing loans to the entity or buying equity instruments of the entity] [OB2].
Existing and potential investors, lenders, and other creditors are the primary users to whom general purpose financial reports are directed [OB5]. They require useful information in order to be able to assess the future cash flows of the ...
Primary users of the financial statements are considered existing and potential investors, creditors, and lenders. Primary users obtain financial statement information and allow them to understand the overall health of the company such as its net cash flow status etc. Such users make decisions related to purchasing or selling interest in these reporting entities. Other information can be provided about the company such as information related to management and the board of directors. This will give primary users a greater understanding of qualitative characteristic about the company.
You might also be interested in... What is included in a company’s financial statements?
At a very high-level, there are 5 key sections to a company’s financial statements. There may be certain other requirements for public companies, NFP’s, or governmental entities. However, the five main components include
the balance sheet, income statement, changes in equity, cash flow statement, and the notes to the financial statements.
What can financial statements tell readers?
Financial statements can be used for just about anything the reader wants them to be used for! Financial statements can tell the reader about the economic resources owned by the company, the
solvency and liquidity, as well as their ability to obtain financing. Financial statements also provide a high-level of the operations of the business....
What is included in a company’s financial statements?
At a very high-level, there are 5 key sections to a company’s financial statements. There may be certain other requirements for public companies, NFP’s, or governmental entities. However, the five main components include the balance sheet, income statement, changes in equity, cash flow statement, and the notes to the financial statements.
What can financial statements tell readers?
Financial statements can be used for just about anything the reader wants them to be used for! Financial statements can tell the reader about the economic resources owned by the company, the solvency and liquidity, as well as their ability to obtain financing. Financial statements also provide a high-level of the operations of the business....