The Framework addresses general purpose financial statements including consolidated financial statements that a business enterprise prepares and presents at least annually to meet the common information needs of a wide range of users external to the enterprise. Therefore, the Framework does not necessarily apply to special purpose financial reports such as reports to tax authorities, reports to governmental regulatory authorities, prospectuses prepared in connection with securities offerings, and reports prepared in connection with business combinations.
Users and their Information Needs
The principal classes of users of financial statements are present and potential investors, employees, lenders, suppliers and other trade creditors, customers, governments and their agencies and the general public. All of these categories of users rely on financial statements to help them in decision making.
While financial statements cannot meet all of the information needs of these user groups, there are information needs that are common to all users, and general-purpose financial statements focus on meeting these needs.
Responsibility for Financial Statements
The management of an enterprise has the primary responsibility for preparing and presenting the enterprise’s financial statements.
The Objective of Financial Statements
The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions.
The financial position of an enterprise is affected by the economic resources it controls, its financial structure, its liquidity and solvency, and its capacity to adapt to changes in the environment in which it operates. The balance sheet presents this kind of information.
Performance is the ability of an enterprise to earn a profit on the resources that have been invested in it. Information about the amounts and variability of profits helps in forecasting future cash flows from the enterprise’s existing resources and in forecasting potential additional cash flows from additional resources that might be invested in the enterprise. The Framework states that information about performance is primarily provided in an income statement.
Changes in Financial Position or Cash Flows
Users of financial statements seek information about the investing, financing and operating activities that an enterprise has undertaken during the reporting period. This information helps in assessing how well the enterprise is able to generate cash and cash equivalents and how it uses those cash flows. The cash flow statement provides this kind of information.