Notes of a second year student studying Bachelors of Accounting at the University of the Free State. With this notes that i have compiled, i was able to proudly say that i received a distinction in Financial Management by using this notes. If you are struggling with Financial Management use this no...
Chapter 2: Financial statements
Discuss the objective of financial reporting
Financial reports are prepared according to International Financial Reporting Standards (IFRS)
The IFRS framework sets out basic concepts that are incorporated during the preparation and presentation
of a company’s financial reports.
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.
Important factors:
→ A company’s existing and potential external- capital provider are the primary users of financial
information.
→ Financial reporting provides financial information about the company’s economic resources, claims
on these resources and changes in the resources and claims.
→ Financial reporting attempts to provide useful financial information that can be used by the
external- capital providers to inform their decision making.
Identify the users of financial reporting
Users Why use?
Investors/ Shareholders They want to determine the value of their investment
Lenders/ Creditors Determine if company will be able to make payments when due
Managers Decision making and performance evaluation
Employees Determine if they have job security
Government (SARS) Determine what the tax obligation of the company is.
Describe the information that is provided by financial reporting
Provides information about a company’s economic resources (assets) and the claims of these resources
(equity and liabilities). It reflects information about the financial performance (fin position) of the
company.
Financial performance – Refers to its ability to generate income with its available assets. Financial position
is influenced by the economic resources available to it, and the capital structure used to finance these
resources
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