ACCOUNTING STANDARDS

Accounting Standards

Accounting Standards

Purpose

The Purpose of General Purpose Financial Reports

Before identifying who a user of a financial report is, we need to have a comprehensive understanding of the purpose of GPFRs. As stated in Statement of Accounting Concepts (SAC) 2, the purpose of GPFRs is that an entity, "...should provide information useful to users for making and evaluating decision about allocation of scare resources" (SAC 2, paragraph 43), also, "management and governing bodies should present GPFRs in a manner whish assists in discharging their accountability (SAC 2, paragraph 44).

Who are the Users of Financial Report

Based on the objectives of financial reporting, the definition of the user of a financial report can be identified. However, the perspectives may vary slightly from different countries. In order to pursue the economic globalization trend, more and more countries adopt International Accounting Standards (IAS) to meet the new needs of GPFRs' users, especially for the users who resident in other nations for cross-border trading and investment (Howieson, B, 1997). The following section will take different perspectives from US and UK as examples to identify who a user of a financial report is and their specific needs on GPFRs.

In United States, Statement of Financial Accounting Concept No.1 (SFAC 1) "Objectives of financial reporting by business enterprises" defines the users of accounting information as "...present and potential investors and creditors and other users with reasonable understanding of economic and business situations" ( Gavin, TA, 2003). The investors, creditors and other users may use reported earnings and information about the elements of financial statements in various ways to assess the prospects for cash flows, they may wish, for example, to evaluate management's performance, estimate "earning power," predict future earnings, assess risk, or to confirm, change, or reject earlier predictions or assessments. Although financial reporting by business enterprises is required to provide basic information to aid the users of GPFRs, they always prefer to do their own evaluating, estimating, predicting, assessing, confirming, changing, or rejecting.

In United Kingdom, the perspective on users of GPFRs has been widened. The Corporate Report produced in 1970s states that all groups impacted by an organization's operations have rights to information about the reporting entity, not necessarily related to resource allocation decisions (Deegan, C 2000). In addition to the users who need information provided in the financial statements in making resource allocation decisions, the user group of GPFRs also includes those who wish to assess the stewardship or accountability of management do so in order that they may make economic decisions which may include, for example, whether to hold or sell their investment in the enterprise or whether to reappoint or replace the management (Godfrey, J, M; Langfield-Smith, I, A, 2004).

Compare among Different Definitions

In Australia, when considering about the question of who the user of GPFRs is, reference can be made to the definition within SAC 2--Objective of General Purpose Financial Reporting. SAC 2 describes various categories of users and their information needs. In particular, it highlights three primary users of GPFRs all of which are ...