AC 210 Lecture 2: Financial Reporting Objectives
5 Jun 2018
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Financial Reporting Objectives
Financial statements are prepared according to agreed upon guidelines. In order to
understand these guidelines, it helps to understand the objectives of financial reporting.
The objectives of financial reporting, as discussed in the Financial Accounting standards
Board (FASB) Statement of Financial Accounting Concepts No. 1, are to provide
information that:
1. Is useful to existing and potential investors and creditors and other users in making
rational investment, credit, and similar decisions;
2. Helps existing and potential investors and creditors and other usear to assess the
amounts, timing, and uncertainty of pro spective net cash inflows to the enterprise;
3. Identifies the economic resources of an enterprise, the claims to those resources,
and the effects that transactions, events, and circumstances have on those resources.
Generally Accepted Accounting Principles
Accountants use generally accepted accounting principles (GAAP) to guide them in
recording and reporting financial information. GAAP comprises a broad set of principles
that have been developed by the accounting profession and the Securities and
Exchange Commission (SEC). Two laws, the Securities Act of 1933 and the Securities
Exchange Act of 1934, give the SEC authority to establish reporting and disclosure
requirements. However, the SEC usually operates in an oversight capacity, allowing the
FASB and the Governmental Accounting Standards Board (GASB) to establish these
requirements. The GASB develops accounting standards for state and local
governments.
The current set of principles that accountants use rests upon some underlying
assumptions. The basic assumptions and principles presented on the next several
pages are considered GAAP and apply to most financial statements. In addition to these
concepts, there are other, more technical standards accountants must follow when
preparing financial statements. Some of these are discussed later in this book, but other
are left for more advanced study.
Economic entity assumption. Financial records must be separately maintained for
each economic entity. Economic entities include businesses, governments, school
districts, churches, and other social organizations. Although accounting information from
many different entities may be combined for financial reporting purposes, every
economic event must be associated with and recorded by a specific entity. In addition,
business records must not include the personal assets or liabilities of the owners.
Monetary unit assumption. An economic entity's accounting records include only
quantifiable transactions. Certain economic events that affect a company, such as hiring
find more resources at oneclass.com
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Document Summary
Financial statements are prepared according to agreed upon guidelines. In order to understand these guidelines, it helps to understand the objectives of financial reporting. The objectives of financial reporting, as discussed in the financial accounting standards. Board (fasb) statement of financial accounting concepts no. Accountants use generally accepted accounting principles (gaap) to guide them in recording and reporting financial information. Gaap comprises a broad set of principles that have been developed by the accounting profession and the securities and. Two laws, the securities act of 1933 and the securities. Exchange act of 1934, give the sec authority to establish reporting and disclosure requirements. However, the sec usually operates in an oversight capacity, allowing the. Fasb and the governmental accounting standards board (gasb) to establish these requirements. The gasb develops accounting standards for state and local governments. The current set of principles that accountants use rests upon some underlying assumptions.
