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Other times a reporting entity will comprise a group of entities,
some of which individually may be reporting entities. One
of the entities (i.e. the parent entity) within the group will
control the other entities so that they operate together to
achieve objectives consistent with those of the controlling
entity. The group will issue consolidated general purpose
ﬁnancial reports regarding the collective operation of the
group of entities. ! Objective of general purpose financial 9 reporting.
! The qualitative characteristics that determine the usefulness of information in ﬁnancial
! The deﬁnition, recognition and measurement
of the elements from which ﬁnancial
statements are constructed; - i.e. assets,
liabilities, equity, expenses and revenue. 10 Objective of financial reports So what is useful information? “The objective of financial statements is to provide
information about the financial position, financial
performance and cash flows of an entity that is
useful to a wide range of users in making
economic decisions” (para 12) “The economic decisions that are taken by users
of ﬁnancial statements require an evaluation of
the ability of an entity to generate cash and cash
equivalents and of the timing and uncertainty of
their generation” (para. 15)
-Balance Sheet " Financial Position. -Cannot accommodate all users’ complete information needs, as
information is financial in nature, and portray financial effects of
past transactions. (para 13)
-also show the stewardship of management. (para 14) 11 -Income statement " Financial Performance.
-Cash Flow Statement " Cash Inﬂows and Outﬂows. 12 L2 The Framework Principles Underlying Accounting
! Relevance ! What attributes should financial information possess to be useful and satisfy the users’
evaluation of financial reports?
! Purpose is to identify those attributes or
qualitative characteristics that financial
information should possess if it is to serve the
objective of general purpose financial
statements. – Materiality ! Reliability
• Substance over form
• Prudence Assumptions
! Accrual basis
! Going concern
! Accounting period
! Economic entity
! Monetary unit
! Historical Cost – Completeness ! Comparability
13 14 Understandability Relevance
! Information has the quality of relevance when it ! Information needs to be readily influences the economic decisions of users by
helping them evaluate past, present or future events
or confirming, or correcting, their past evaluation.
(para. 26) understandable by users (para 25)
– Users assured to have reasonable knowledge
of business, accounting, etc. (Which is why
you are studying this even though you may
never work as an accountant when you
– That does not mean that we exclude things
just because they are complex....
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This note was uploaded on 09/22/2013 for the course ACCT 1511 at University of New South Wales.