1: THE OBJECTIVE OF GENERAL PURPOSE FINANCIAL REPORTING

• The objective of general purpose financial reporting forms the foundation of the Conceptual Framework.
• 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 relating to providing resources to the entity.
• Decisions relating to providing resources to the entity involve decisions about buying, selling or holding equity and debt instruments.
• Decisions relating to providing resources to the entity involve decisions about providing or settling loans and other forms of credit.
• Decisions relating to providing resources to the exercising rights to vote on, or otherwise influence, management’s actions that affect the use of the entity’s economic resources.
• Existing and potential investors, lenders and other creditors need information to help them make assessment of the amount, timing and uncertainty of (the prospects for) future net cash inflows to the entity and on their assessment of management’s stewardship of the entity’s economic resources.
• Existing and potential investors, lenders and other creditors need information about the economic resources of the entity, claims against the entity and changes in those resources and claims.
• Existing and potential investors, lenders and other creditors need information about how efficiently and effectively the entity’s management and governing board have discharged their responsibilities to use the entity’s economic resources.
• Many existing and potential investors, lenders and other creditors cannot require reporting entities to provide information directly to them and must rely on general purpose financial reports for much of the financial information they need.
• Existing and potential investors, lenders and other creditors are the primary users to whom general purpose financial reports are directed.
• The term ‘financial reports’ refer to general purpose financial reports.
• The term ‘financial reports’ refer to general purpose financial reports.
• The term ‘financial reporting’ refer to general purpose financial reporting.
• The term ‘entity’ refers to the reporting entity.
• However, general purpose financial reports do not and cannot provide all of the information that existing and potential investors, lenders and other creditors need.
• General purpose financial reports are not designed to show the value of a reporting entity; but they provide information to help existing and potential investors, lenders and other creditors to estimate the value of the reporting entity.
• The Board, in developing Standards, will seek to provide the information set that will meet the needs of the maximum number of primary users.
• The management of a reporting entity is also interested in financial information about the entity.
• Management need not rely on general purpose financial reports because it is able to obtain the financial information it needs internally.
• To a large extent, financial reports are based on estimates, judgements and models rather than exact depictions.
• The Conceptual Framework establishes the concepts that underlie those estimates, judgements and models.
• General purpose financial reports provide information about the financial position of a reporting entity, which is information about the entity’s economic resources and the claims against the reporting entity.
• The terms ‘primary users’ and ‘users’ refer to those existing and potential investors, lenders and other creditors who must rely on general purpose financial reports for much of the financial information they need.
• Financial reports provide information about the effects of transactions and other events that change a reporting entity’s economic resources and claims.
• Information about the nature and amounts of a reporting entity’s economic resources and claims can help users to identify the reporting entity’s financial strengths and weaknesses.
• Information about the nature and amounts can help users to assess the reporting entity’s liquidity and solvency, its needs for additional financing and how successful it is likely to be in obtaining that financing.
• Information about the nature and amounts can help users to assess management’s stewardship of the entity’s economic resources.
• Information about priorities and payment requirements of existing claims helps users to predict how future cash flows will be distributed among those with a claim against the reporting entity.
• Changes in a reporting entity’s economic resources and claims result from that entity’s financial performance and from other events or transactions such as issuing debt or equity instruments.
• Information about a reporting entity’s financial performance helps users to understand the return that the entity has produced on its economic resources.
• Information about the return the entity has produced can help users to assess management’s stewardship of the entity’s economic resources.
• Information about the variability and components of that return is also important, especially in assessing the uncertainty of future cash flows.
• Information about a reporting entity’s past financial performance and how its management discharged its stewardship responsibilities is usually helpful in predicting the entity’s future returns on its economic resources.
• Accrual accounting depicts the effects of transactions and other events and circumstances on a reporting entity’s economic resources and claims in the periods in which those effects occur, even if the resulting cash receipts and payments occur in a different period.
• Information about a reporting entity’s economic resources and claims and changes in its economic resources and claims during a period provides a better basis for assessing the entity’s past and future performance than information solely about cash receipts and payments during that period.
• Information about a reporting entity’s financial performance during a period, reflected by changes in its economic resources and claims other than by obtaining additional resources directly from investors and creditors, is useful in assessing the entity’s past and future ability to generate net cash inflows.
• Information about a reporting entity’s financial performance during a period may also indicate the extent to which events such as changes in market prices or interest rates have increased or decreased the entity’s economic resources and claims, thereby affecting the entity’s ability to generate net cash inflows.
• Information about a reporting entity’s cash flows during a period also helps users to assess the entity’s ability to generate future net cash inflows and to assess management’s stewardship of the entity’s economic resources.
• Information about a reporting entity’s cash flows during a period indicates how the reporting entity obtains and spends cash, including information about its borrowing and repayment of debt, cash dividends or other cash distributions to investors, and other factors that may affect the entity’s liquidity or solvency.
• Information about cash flows helps users understand a reporting entity’s operations, evaluate its financing and investing activities, assess its liquidity or solvency and interpret other information about financial performance.