Importance of Financial Reporting & Construction of Financial Statements
2. Purpose of IAS 1 & Objective of Financial Statements
3. Components of Financial Statements
Financial Accounting through its processing data and their communication provides information quite important in decision making.
Financial Reporting – The totality of information communicated by financial accounting in the form of tables, figures and words, presented according to certain rules. Public able financial reporting of a unit is the main and almost only source of information for external users. The reliability of PF information is very important for the economic development of a country, for the introduction of foreign capital and foreign direct investment, for the development of financial markets, etc. In the “Basic Accounting Principles” is explained and given the techniques of PF construction by the accounting system.
Here we will clarify what are the constituent parts of the PF published for general purposes, how the data are presented in these parts, to provide the information required by users and the main rules about them. The construction & publication of the FF in each country is regulated by the national legislation & depending on the manner of accounting regulation of each country. This fact contains in itself the possibility that in the financial reporting and in the financial statements prepared by the units of different countries there is a difference in both form and content.
In an effort to ensure the same rules for the construction and presentation of internationally valid and applicable PFs, the IASB established a special accounting standard, namely IAS 1 entitled “Preparation and presentation of PFs”. The creation of the IASB and other bodies, the IAS, led to a reduction in differences in form and content between accounting standards published in different countries and the PF itself.
Purpose of IAS 1 – PF constructed to comply with any other applicable principle; deviations from IAS criteria are too limited; provide guidance on the structure and composition of the PF, including the minimum criteria for the composition and presentation of the main PF, accounting policies, and explanatory notes to the PF.
According to IAS 1- PF are a structured financial presentation of the financial situation and actions taken by the reporting entity. According to IAS 1 the PF objective for general purposes is to provide information: on the financial situation, performance and changes in cash flows & capital that have brought about this situation of performance. PF also provide information to judge the level of management of the unit. Useful information for a wide range of users in making economic decisions.
Regarding the financial situation, PF as a whole and the balance sheet in particular it must provide information on: The economic resources it owns or controls the financial structure – to anticipate:
At needs to borrow and capital
. The way in which profits and cash flows will be distributed among the parties Nest the chances of success of the entity in borrowing capital
Its Liquidity and Sociability (Continuity),
. To judge the ability of the unit to cope with obligations with achieving the repayment term. No the ability of the unit to adapt to change. Regarding performance, PF should provide information necessary in order to assess changes potential of economic resources that the entity is able to master in the future:
. To predict the ability of the unit to generate cash inflows based on existing resources.
. To evaluate the efficiency with which the unit will be able to use supplementary resources. Information about the monetary movements of an economic entity is valuable to assess unit activities during a reporting period, we the field of investment, financing and exploitation.
(MM turnover statement)
. This information enables especially the assessment of ability that unit to generate cash or cash equivalents as well as to estimate the unit’s needs for cash.
PF also show the results of the process of management by resource managers entrusted to them
And consequently the responsibility of management. According to IAS 1 responsible for PF, to determine, select accounting rules and policies for preparation and the presentation of the PF is the board of directors and / or the group head of the entity. IAS 1 stipulates that to ensure the appropriate level of user transparency, Published PF for general purposes must consist of: statement of financial position (balance sheet); statement of comprehensive income and expenses; Overview of changes in equity; cash flow statement; and
Shine explanatory notes (annexes) Financial Reporting – The totality of information communicated by financial accounting in the form of tables, figures and words, presented according to certain rules. Public able financial reporting of a unit is the main and almost only source of information for external users. The reliability of PF information is very important for the economic development of a country, for the introduction of foreign capital and foreign direct investment, for the development of financial markets, etc. In the “Basic Accounting Principles” is explained and given the techniques of PF construction by the accounting system.