3achapter2 - Objectives of Financial Reporting Financial...

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Slide 2-1 ECON 3A UCSB ANDERSON Financial Statements and the Annual Report Chapter 2 Slide 2-2 ECON 3A UCSB ANDERSON Objectives of Financial Reporting (a) PROVIDE USEFUL INFORMATION Financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions. The information should be comprehensible to those who have a reasonable understanding of business and economic activities and are willing to study the information with reasonable diligence. 1 LO 1 Describe the objectives of financial reporting. 1 Statement of Financial Accounting Concepts (SFAC) No. 1 Slide 2-3 ECON 3A UCSB ANDERSON Objectives of Financial Reporting (b) REFLECT INFORMATION ON CASH FLOWS Financial reporting should provide information to help present and potential investors and creditors and other users in assessing the amounts, timing, and uncertainty of prospective cash receipts from dividends or interest and the proceeds from the sale, redemption, or maturity of securities or loans. Since investors' and creditors' cash flows are related to enterprise cash flows, financial reporting should provide information to help investors, creditors, and others assess the amounts, timing, and uncertainty of prospective net cash inflows to the related enterprise. 1 LO 1 Describe the objectives of financial reporting. 1 Statement of Financial Accounting Concepts (SFAC) No. 1 Slide 2-4 ECON 3A UCSB ANDERSON Objectives of Financial Reporting (c) REFLECT THE FINANCIAL POSITION OF THE ENTITY Financial reporting should provide information about the economic resources of an enterprise, the claims to those resources (obligations of the enterprise to transfer resources to other entities and owners' equity), and the effects of transactions, events, and circumstances that change its resources and claims to those resources. 1 LO 1 Describe the objectives of financial reporting. 1 Statement of Financial Accounting Concepts (SFAC) No. 1
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