B) Explain the objective of Financial Statements and say what ensures usefulness of information disclosed in them to the users

The objective of financial statements is to provide useful information... users. Among the users are present and potential investors, lenders, suppliers and customers, employees, governments... home and host countries, the public at large, and also those who act... behalf of users.

The objectives of financial statements are defined... the needs of users. In general, information must be provided about the financial position, performance and changes... financial position of an enterprise.

Such information is useful to a wide range... users in making decisions and is necessary to keep management accountable... the resources entrusted... it. Financial statements can also provide useful information to governments for making policy decisions, although governments often require special-purpose reports as well. More specifically, a variety of users need to be able to assess the performance of an enterprise and thus are interested, among other things,... the cash flow of the enterprise. For example, investors must know if they will receive dividends and when they should buy, hold and sell stock. Lenders are interested in determining whether interest and principal... loans will be paid when due. Suppliers, other creditors and customers must determine whether they will be paid... time or will continue to receive a product or service on which they might depend. Employees are interested in the continuation of their employment and, therefore, in the stability and profitability... their employment. Members of the public are also interested in the impact of the activities of the enterprise... the general welfare.

The usefulness of information can be determined... its relevance to the needs of the users and the extent... which users can rely... such information. Other important characteristics of useful information include comparability and understandability. Besides, users benefit more... information that is available at the time it is required, information provided long after it is needed is... little relevance.

Financial statements should disclose all items that are material enough to affect evaluations or decisions.

The information published... reporting enterprises must assist users... predicting future prospects of the enterprise.

Transactions and events that form the basis of financial statements are sometimes open... different interpretations. They can be viewed according to their legal form or their economic reality. Enterprises should emphasize the economic substance of transactions and events.

Information must be free... bias with respect... various users, it should assist in decision-making but should not influence decisions in a predetermined direction.

Financial statements should be prepared in a comparable way so that the performance of different enterprises, or of the same enterprise over time, can be examined. The comparability of financial statements is enhanced... the relative stability of accounting policies, which specify the methods by which a reporting enterprise measures, accumulates and summarizes the economic events and data... its records. Stability means that no change in accounting policies will be made unless it is clearly necessary.

Comparability across enterprises requires that a consistent set of definitions, units of measurement, assumptions, measurement techniques and reporting intervals be applied. If financial statements from enterprises in different countries are to be compared, the users must be aware... the relative differences among national accounting policies.

Comparability can be enhanced by the harmonization of national standards or the adoption of international standards.

Based on: Objectives and concepts

Underlying Financial

Statements, ISAR, 1989

Words you may need:

the public at large широкая публика

understandability n понимаемость; (зд.) читаемость

disclose v раскрывать (информацию)

reporting enterprise предприятие, подающее свою отчетность

bias n необъективность, предвзятость

predetermined adj предопределенный, заранее решенный

to be aware of знать, быть осведомленным (о чём-л.)

Дата добавления: 2014-11-29