General purpose financial reporting Essay Sample
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General purpose financial reporting Essay Sample
General purpose financial reporting is a way to communicate important and dependable information to its users. For e.g. we as a whole get receipts when we make buys from stores and us as a whole get bills. these both are financial reports as it conveys us the status of our records and individual exchanges. Special purposes financial reporting is a set of cash related decrees that are prepared using a special purpose framework to consider the particular needs of specific customers who intend to use it.
It can be accessed by a specific group of people who are allowed to use it. It is prepared only for the use of management staff or for the government entities or tax authorities. where a general purpose financial report can be viewed by a large number of people. It is prepared for open utilization, with the goal of giving a picture of the organization to its investors, creditors or partners.
There are numerous clients of the financial explanations delivered by an association. The accompanying rundown recognizes the more typical clients of financial statement articulations and the reasons why they require this information:
for investigating the practicality and productivity of their speculation and deciding any future strategy.
2. Company Management & its Representatives.
The management group needs to fathom the advantage, liquidity, and cash surges of the affiliation reliably, with the objective that it can settle on operational and financing decisions about the business.
An association may give its cash related explanations to agents, nearby a quick and dirty illumination of what the documents contain. This can be used to manufacture the level of laborer commitment in and appreciation of the business.
3. Investors & creditors
Investors use this information to make a choice about whether they will purchase, offer, or clutch a specific organization\’s stock and creditor uses the financial statements to decide their risk in advancing cash to a specific organization and to for also analyzing the capacity of the organization who borrowed the money to see if they can pay back all credited finances and related premium charges.
4. Governments and Regulatory Authorities:
A government under whom an organization is found will ask the organization to submit financial statement to the government so they can analysis whether the organization have paid correct measure of the taxes or not A regulatory authority needs this information for ensuring that the association\’s disclosure of financial information is according to the norms and bearings set with a particular true objective to secure the interests of the partners who rely upon such information while doing their decisions.
5. Clients. When a client is thinking about in which organization should they invest their money this is the time when they need the financial statement of the organization so they can have a clear picture of the organization .and to see whether the organization can fulfill their needs which they expect in exchange of the e amount that they are investing in the organization.
Fundamental Qualitative Characteristics –
Relevance: the information provided to its end clients should be relevant and should help them in settling financial choice otherwise it will be considered as useless information
Faithful representation: the report should consist of all the business deals with a valid proof and it should indicate what truly is available and what truly happened
There are three components of faithful representation which are as follows
Completeness: satisfactory or full exposure of all necessary information
Neutrality: fair and free from bias
Free from error: it should be free from errors and exclusions
Enhancing Qualitative Characteristics
Compatibility: it enables its user to do comparison within the entity or across entities
Verifiability: the information provided to its user should have proper evidence in case the user wants to verify it.
Understandability: information that may be difficult for its user to understand should be made more useful by showing and clarifying it as simple as possible.
Timeliness: information should be conveyed to its investors, lenders and other creditors in a timely manner so it helps them in their decision-making process. If the information is delayed so it will have a little or no value
Financial statement shows the financial effects of transaction and different occasions by classifying them into two wide classes depending upon their financial qualities
These wide classes are termed as elements of financial statement framework para 47).
There are two standards while classifying these elements into wide classes:
• The first is identified with the estimation of a substance\’s financial related position:
resources, liabilities, and value.
• The second is identified with the estimation of execution:
income and expenses.
In order for an element to be recognized in the financial statement, it should meet the definition of an element provide in the conceptual framework and should satisfy the following criteria
a. it is likely that any future money benefit to the organization is related to the element and it will stream to or from the substance; and
b. The cost of the element or the estimation of the element can be measured with unwavering quality.
Asset : An Asset is a resource which is a controlled by the organization or an individual and is the result of the past events. From assets the organization get money related benefit in future which flow into their business
The below example explains the above definition clearly.
Recognition of an element
element X goes into a lawful course of action to be as trustee for element Y by holding recorded shares for element Y\’s sake. element Y will settle all the money related decision and element X will act according to the saying of element Y\’s. element X will win a trustee expense for holding the shares on behalf of element Y. Any profits or benefit or loss from the investment belongs to element
X cannot recognize this listed share as his own assets even though the shares are in element X possession. element X will not get any benefit from this share. The benefits from this investment will
flow to element Y no matter how the shares perform element X will only get his trustees fees for holding the shares The listed shares, therefore, do not meet the criteria of an element in substance X’s balance sheet.
In evaluating even if an element meets the definition of an asset (or a liability or equity), consideration will be given to its fundamental substance and financial reality and not only its authoritative document.
An asset is a resource with the financial esteem that an individual, company or nation controls with the desire that it will give financial benefit to the organization in future. Resources are accounted on a company\’s balance sheet, and they are purchased or made to expand the estimation of a firm or to get advantage for the company\’s operations. An advantage can be thought of as something that later on can provide money benefit, diminish costs, upgrade bargains, paying little notice to whether it\’s an association\’s amassing equipment or a patent on a particular advancement. Employees of the companies are not the assets because assets can be bought and employees are a human being which cannot be bought. Employees are investors in the firm because they invest their talents skills and time and energy in the organization instead of money in return the money which they get from the organization is mentioned as salary and bonuses ad it is mentioned in the organization expense account of the organization
The above discussions clearly show that an employee is not an asset to the company as it cannot be bought as a property or a thing which can give a future benefit to the organization. Employees are just under a contract to invest its skill for the profit of the organization due to which they are known as investors instead of assets
Therefore, the Group Managing Director of Habib Jewels ltd may name laborers as \”our most important assets\” inconsistency with regular fairness but in practical employees does not fall into any category of assets. However, many organizations consider their employees as an asset because they are the one who invests their skill for getting an asset for the organization.