Financial Statements

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Financial Statements

International Financial Reporting Standards

International Financial Reporting Standards


At regular period public companies must prepare documents called financial statements. Financial statements show the financial performance of an company. They are used for both internal-, and external purposes. When they are used internally, the management and sometimes the employees use it for their own information. Managers use it to plan ahead and set goals for upcoming periods. When they use the financial statements that were published, the management can compare them with their internally used financial statements. They can also use their own and other enterprises' financial statements for comparison with macroeconomical datas and forecasts, as well as to the market and industry in which they operate in.The four main types are balance sheets, profit and loss accounts, cash flow statements, and income statements.

tudents studying Financial Reporting papers will often come across the IASB's 'Framework Document'. Lots have been written about accounting standards and their principles, but what exactly is the IASB's Framework Document.

The objective of the Framework Document is to set out the concepts that underlie the preparation and presentation of financial statements for external users as set out in the 'Framework for the Preparation and Presentation of Financial Statements'. It is important at the outset to understand that the Framework Document itself is not a standard - its primary purpose is to assist the IASB in developing new or revised accounting standards and to assist preparers of financial statements applying accounting standards and dealing with issues which are not covered by accounting standards.

There are four qualitative characteristics which the IASB's Framework Document refers to. They are:

(a) understandability;(b) comparability;(c) relevance; and(d) reliability

Understandability and comparability are both 'presentation' issues within a set of financial statements. Relevance and reliability are both 'content' issues.


Users of financial statements are assumed to have a good understanding of the business which the financial statements relate to as well as its activities. The users are expected to have a knowledge of financial issues, and information about complex matters should not be excluded simply because the entity may consider it too complex for certain users to understand.


Users of financial statements must be able to compare financial statements of an entity to different entities in order to evaluate the financial position, performance and changes in financial position.

In addition, users should also be able to compare the financial statements of an entity through time i.e. from one year to the next, therefore financial statements must show corresponding information for preceding periods (these are often referred to as 'comparatives').

In order for comparability to be achieved, if an entity changes an accounting policy this is the reason why a prior year adjustment needs to be undertaken. This ensure consistent measurement and display of the financial effect of like transactions and other events.


Information must be relevant in both nature and materiality. Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. Relevance could also be determined by nature ...