Meaning,Objectives,Types & Importance of Financial Reporting.

1. PRESENTATION ON FINANCIAL
REPORTING
By: Shubham

2. Meaning
•THE CORPORATE FINANCIAL REPORTING IS A SYSTEM OF
COMMUNICATION BETWEEN THE MANAGEMENT AND THE
USER-GROUPS OF THE FINANCIAL STATEMENTS; IN ORDER TO
REPORT THE RESULTS OF THE BUSINESS ACTIVITIES OF A
CORPORATE ENTERPRISE AND ALSO TO DEMONSTRATE THE
CREDIBILITY, ACCOUNTABILITY AND RELIABILITY OF ITS
WORKING (SAEED,1990).
•FINANCIAL REPORTING IS THE PROCESS OF PRODUCING
STATEMENTS THAT DISCLOSE AN ORGANIZATION'S FINANCIAL
STATUS TO MANAGEMENT, INVESTORS AND THE
GOVERNMENT.

3. Meaning

4. Objectives of Financial Reporting4
General Objective:
Provide information that is useful to
present and potential investors,
creditors, and other users in making
rational investment, credit, and similar
decisions

5. 5Objectives of Financial Reporting
Derived External User Objective:
Provide information that is useful to
present and potential investors, creditors,
and other users in assessing the amounts,
timing, and uncertainty of prospective
cash receipts from dividends and interest,
and the proceeds from the sale,
redemption, or maturity of securities or
loans

6. 6
Derived Company Objective:
Provide information to help
investors, creditors, and others in
assessing the amounts, timing, and
uncertainty of prospective net cash
inflows to the related company
Objectives of Financial Reporting

7. 7
Specific
Objectives
Provide information about a company’s
economic resources, obligations, and
owners’ equity.
Provide information about a
company’s comprehensive income and
its components.
Provide information about
a company’s cash flows.
Objectives of Financial Reporting

8. 8
First, financial reporting should
provide information about how the
management of a company has
discharged its stewardship
responsibility.
Other Issues

9. 9
Second, a company’s financial statements
and other means of financial reporting
should include explanations and
interpretations by its management to help
external users understand the financial
information provided.
Other Issues

10. 10
Providing this critical information is
known as full disclosure.
Other Issues

11. 11
Accounting information should be
understandable to users who have a
reasonable knowledge of business
and economic activities and who are
willing to study the information
carefully.
Understandability

12. 12
Decision usefulness is the overall
qualitative characteristic to use in
judging the quality of accounting
information.
Decision Usefulness

13. 13
Accounting information is relevant if
it can make a difference in a decision.
Relevance

14. 14
Comparability of accounting information
enables users to identify and explain
similarities and differences between two or
more sets of economic facts.
Hierarchy of Qualitative
Characteristics

15. 15
which implies that the accounting
information is directed towards the
common needs of the users rather than
the particular needs of specific users
Neutrality

16. 16
which implies an early
communication of information to
avoid delays in economic decision-
making.
Timeliness

17. 17
which implies that all the information that is
“reasonably” needed to fulfill the
requirement of the other qualitative
objectives should be reported.
Completeness

18. Assumptions and Principles
ENTITY
The entity assumption assumes that a proprietorship,
partnership, or corporation’s financial activities are
distinguished from other financial organizations in
keeping its own financial records and reports.

19. Assumptions and Principles
THIS ASSUMPTION ASSUMES THAT THE COMPANY WILL
CONTINUE TO OPERATE IN THE NEAR FUTURE, UNLESS
SUBSTANTIAL EVIDENCE TO THE CONTRARY EXISTS. THIS
ASSUMPTION IS ALSO KNOWN AS THE GOING-CONCERN
ASSUMPTION.
Continuity

20. Assumptions and Principles
Period of Time
In accordance with the period-of-time assumption, a
company prepares financial statements at the end of each
year and includes them its annual report. The period-of-
time assumption is the basis for the adjusting entry
process at period-end.

21. This assumption states that there must be some basis for
measuring exchange of goods or services. Currently, the dollar
is considered to be a stable monetary unit for preparing a
company’s financial statements.
Monetary Unit
Assumptions and Principles

22. Which amount should be used?
COST
$16,000
Historical Cost
Assumptions and Principles

23. TYPES OF FINANCIAL REPORTING
1. BALANCE SHEET
2. INCOME STATEMENT
3. STATEMENT OF CASH FLOWS
4. STATEMENT OF CHANGES IN EQUITY

24. It also is called a
statement of
financial position.
A balance sheet is a financial
statement that summarizes the
financial position of a company
on a particular date.
Balance Sheet

25. Income Statement
 An income statement is
a financial statement
that summarizes the
results of a company’s
operations for a period
of time.

26. Statement of Cash Flows
 A statement of cash flows is a
financial statement that summarizes
the cash inflows and outflows of a
company for a period of time.

27. Statement of Changes in Equity
 A statement of changes in equity
summarizes the changes in a
company’s equity for a period of
time.

28. Importance of Financial
Reporting
1. Importance to Management.
2. Importance to Creditors.
3. Importance to Investor.
4. Importance to Government.
5. Importance to Bankers.
6. Importance to Employees.