FINANCIAL STATEMENTS

1. Definition of financial statements

2. General purpose financial statements
3. Components and objectives of financial statements
4. Financial reporting and its objectives
5. Limitations and responsibility of financial
statements
6. General features of financial statements
7. Accountability of management

CLASS: BSAIS 2A
DEFINITION: FINANCIAL STATEMENTS

- Are the means by which the information

accumulated and processed in financial
accounting is periodically communicated to the
users.

-Are a structured financial representation of the

financial position and financial performance of an
entity.
GENERAL PURPOSE FINANCIAL
STATEMENTS

-Are those financial statements intended

to meet the needs of users who are not in
a position to require an entity to prepare
reports tailored to their particular
information needs.
COMPONENTS OF FINANCIAL
STATEMENTS

A complete set of financial statements comprises the

following components:

1. Statement of financial position

2. Income statement
3. Statement of comprehensive income
4. Statement of changes in equity
5. Statement of cash flows
6. Notes, comprising a summary of significant
accounting policies and other explanatory
information.
OBJECTIVE OF FINANCIAL STATEMENTS

General Purpose FS – is to provide information about the

financial position, financial performance and cash flows of
an entity that is useful to a wide range of users in making
economic decisions.

FS – also show the results of the stewardship of

management of the resources entrusted to it.

FS – DO NOT PROVIDE ALL THE INFORMATION

THAT USERS MAY NEED TO MAKE ECONOMIC
DECISION
 FINANCIAL REPORTING

-Is the provision of financial information about an entity to

external users that is useful to them in making economic decisions
and for assessing the effectiveness of the entity’s management.

-Encompasses not only financial statements but also other means

of communicating information that relates directly or indirectly to
the financial accounting process.
OBJECTIVE OF FINANCIAL REPORTING

GAAP – is to provide financial information about the

reporting entity that is useful to existing and potential
investors, lenders and other creditors in making decisions
about providing resources to the entity.

OVERALL OBJECTIVE: To provide information that is

useful for decision making.
SPECIFIC OBJECTIVES OF FINANCIAL
REPORTING

The conceptual framework for financial reporting states the

following objectives of financial reporting:

1. To provide information useful in making investing and

credit decisions about providing resources to the entity.

2. To provide information useful in assessing the prospects of

future net cash flows to the entity.

3. To provide information about an entity resources, claims

and changes in resources and claims.
LIMITATIONS OF FINANCIAL REPORTING

1. General Purpose Financial Reporting do not and cannot

provide all of the information that existing and potential
investors, lenders and other creditors need.
2. General Purpose Financial Reporting are not designed to
show the value of a reporting entity but these reports provide
information to help the primary users estimate the value of
the entity.
3. General Purpose Financial Reporting are intended to provide
common information to users and cannot accommodate every
specific request for information
4. To a large extent, financial reports are based on estimate and
judgment rather than exact depiction.
 RESPONSIBILITY FOR FINANCIAL
STATEMENTS

•Management of an entity – has the primary responsibility

for the preparation and presentation of financial statements
•Board of Directors – in discharging its responsibilities
reviews and authorizes the financial statements for issue
before these are submitted to the shareholders of the entity.
 GENERAL FEATURES OF FINANCIAL
STATEMENTS

1. Fair presentation and compliance with PFRS

2. Going concern
3. Accrual basis
4. Materiality and aggregation
5. Offsetting
6. Frequency of reporting
7. Comparative information
8. Consistency of presentation
IDENTIFICATION OF FINANCIAL
STATEMENT

The following shall be prominently displayed:

1. The name of the reporting entity

2. Whether the financial statements cover the individual entity
or group of entities
3. The end of the reporting period or the period covered by
the financial statements or notes.
4. The presentation currency.
5. The level of rounding used in the amounts in the financial
statements