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The objective of general purpose financial reporting - Coggle Diagram
The objective of general purpose financial reporting
To provide financial information about the reporting entity that is useful to present and potential equity investors, lenders and other users in making decisions about providing resources to the entity
Financial statements also help the stakeholders in assessing the stewardship of the management team who run the business and have control of the underlying assets of the entity
Provide information about
The economic resources
Claims against those resources
Financial performance that indicates how efficiently and effectively such resources have been used by management
Information about a reporting entity's financial performance is helpful in predicting future returns
Financial statements highlight the strengths and weaknesses of the entity
Users
Investors
Shareholders or proprietors are interested in the earning capacity of the business, its future prospects and the wellbeing of the business
Financial statements help investors to decide about buying, holding or selling Shares
They also provide information about the level of dividend and the overall financial health of an entity
The P&L, SOFP, EPS indicate the performance of the preceding year and whether management has been running the company efficiently
Help to see the company's prospects, present its liquidity position and how the company's shares compare with those of its competitiors
Employees and management
Company performance is related to the security of employment and future prospects for jobs in the company
Employees are interested in financial statements that reflect the company's job prospects and the growth of profit, usually for. salary negotiations or bonus agreements with management
The financial position and performance helps management to manage the business, such as by preparing budgets and assessing the performance of various departmental heads
Lenders
The information in financial statements help lenders decide whether to lend to a company
The information is checked for adequacy of the value of security and the ability to make interest and capital repayments
This is also used to ensure financial restrictions or covenants have not been breached
Suppliers
Are interested to assess whether the company will be a good customer and pay its debts
Customers
The company should be in a good financial position to be able to continue producing and supplying goods or services
Governements and their agencies
Are concerned with the business' compliance with tax and company law
Determining tax liability, its ability to pay tax and its general contribution to the economy
Governments use financial information to formulate policies and regulations including taxation policy