INTERNATIONAL FINANCIAL REPORTING

International Financial Reporting



International Financial Reporting

Financial information disclosed in the general purpose external financial reports provide useful information to the users, both internal and external, for making and evaluating decisions on the allocation of scarce resources. Therefore, it requires that the information should contain certain attributes which assure the objectives of GPFR can be achieved. This essay will examine these attributes which called qualitative characteristics of financial information in four aspects, relevance, reliability and comparability, understandability.

To see how the concepts of the framework come into practice, an annual report was chosen as an example.

“MTR Corporation Limited - A dynamic and engaging report with clear, concise and effective presentation.” commented by the HKMA on 2005 annual report of MTR Corporation in the Best Annual Reports Awards. It is interested to see what makes MTR won the silver award in Best Annual Reports Awards Competition. In part B, the MTR annual report will be reviewed to see how useful the information is based on the four qualitative characteristics.

A conceptual framework is a statement of generally accepted theoretical principles which form the frame of reference for a particular field of enquiry. It sets out the concepts that underlie the preparation and presentation of financial statements for external users. The framework serves several needs like providing a basis for standard setting and adds credibility to the profession and accounting statements, etc. However, it does not define any standard for particular measurement or disclosure issue and thus nothing in this Framework will override any specific Statement of Standard Accounting Practice (SSAP) or Guideline. It is important to state the requirement of SSAP or Guideline always prevail over those of the Framework. When there is any conflict arises between them, which is not that usual, reporting enterprises will not get confused.

The content of Framework includes:

(a)

the objective of financial statements;

(b)

the qualitative characteristics;

(c)

the definition, recognition and measurement of the elements; and

(d)

concepts of capital and capital maintenance.

 

(a)        Objective of financial statements

Different user groups and their specific information needs are identified in the Framework. These identifications point out financial statements are not prepared without purpose but target to provide information about the financial position, performance and changes in financial position of an enterprise that is useful for wide range of users to make economic decisions. Since there is only one set of financial statement, not all of the information needs of these users can be met. The financial statements therefore focus on the common needs of users. Investor group is being identified as the primary group for whom the financial statements are being prepared.

“If they require specific disclosures that might be relevant to them, they will need to take their own steps to obtain them, particularly where there is a conflict of interest.” [Elliott and Elliot 2005]

Therefore, it is important, for all of the other users to be aware that this is one of the principles.

The framework tells which kind of information is provided in different parts of financial ...