Objective of Financial Reporting

The overall objective of financial reporting is to provide information that is useful for decision making.


Specifically, the AICPA Financial Accounting Standards Board in its Statement of Financial Accounting Concepts enumerates the following objectives of financial reporting:

1. To provide information useful in investment, credit, and similar decisions.
2. To provide information useful in assessing cash flow prospects.
3. To provide information about entity resources, claims to those resources and changes in them.

Financial Reporting

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.

The principal way of providing financial information to external users is through the annual financial statements.

However, financial reporting encompasses not only financial statements but also other means of communicating information that relates directly or indirectly to the financial accounting process.

Financial reports include not only financial statements but also other information such as financial highlights, summary of important financial figures, analysis of financial statements and significant ratios.

Financial reports also include non-financial information such as description of major products and a listing of corporate officers and directors.

Objective of Financial Statements

The objective of general purpose financial statements is to provide information about the financial position, financial performance, and cash flows of an entity that is useful in a wide range of users in making economic decisions.


Financial statements also show the results of the management's stewardship of the resources entrusted to them. To meet this objective, financial statements provide information about the following:

1. Assets,
2. Liabilities,
3. Equity,
4. Income and expenses, including gains and losses,
5. Contributions by and distributions to owners in their capacity as owners,
6. Cash Flows

Such information, along with other information in the notes would assist users of financial statements in predicting the entity's cash flows and in particular their timing and certainty.

However, financial statements do not provide all the information that users may need to make economic decisions since they largely portray the financial effects of past events and do not necessarily provide non-financial statements.

Components of Financial Statements

A complete set of financial statements comprises the following components:

1. Statement of Financial Position (Balance Sheet)
2. Income Statement
3. Statement of Comprehensive Income
4. Statement of Changes in Equity
5. Statement of Cash Flows
6. Notes, comprising a summary if significant accounting policies and other explanatory information.

Many entities also present reports and statements such as environmental reports and value added statements, particularly in industries in which environmental factors are significant and when employees are regarded as an important user group.

However, such statements and reports are not components of financial statements and therefore outside of the scope of PFRS.

Luca Pacioli: Father of Accounting

Luca Pacioli was one of the greatest men of the Renaissance. He is also one of the least well known. This is surprising, for Luca Pacioli's manuscripts and ideas changed the way the world worked then, and continue to affect modern daily life.

Luca Pacioli was born in Sansepulcro, in Tuscany. He was probably born during 1445. His family was poor, and Pacioli's future seemed very unpromising. Pacioli joined a Franciscan monastery in Sansepulcro and became an apprentice to a local businessman. The young Pacioli had always loved mathematics though, and he soon abandoned his apprenticeship to work as a mathematics scholar.

Pacioli befriended the artist Piero della Francesca, one of the first and greatest writers and artists of perspective. Francesca and Pacioli journeyed over the Appenines, where Francesca gave Pacioli access to the library of Frederico, the Count of Urbino. The collection of four thousand books allowed Pacioli to further his knowledge of mathematics.

Francesca also introduced Pacioli to Leon Baptist Alberti, who would become Pacioli's new mentor. Alberti brought Pacioli to Venice and arranged for him to tutor the three sons of the rich merchant Antonio de Reimpose. During this time, in the year 1470, Pacioli wrote his first manuscript at the age of twenty-five. The book was about algebra and was dedicated to the Reimpose boys.

Financial Statements

Financial Statements are the means by which the information accumulated and processed in financial accounting is periodically communicated to the users. Stated differently, the financial statements are the end-product or the main output of the financial accounting process.

Financial statements are a structured financial representation of the financial position and financial performance of a business entity. 

Users and Uses of Financial Statements

IAS 1 describes the financial statements as structured representation of the financial position and financial performance of an entity.


Financial statements are directed toward the common information needs of the users. These financial statements are considered general purpose reports and are intended to meet the needs of the users who are not in a position to demand reports tailored to meet their particular information needs.


The Framework enumerates the common users of the financial statements. They are the investors, employees, lenders, suppliers, and other trade creditors, customers, government and their agencies, and the public.

1. Investors. Investors are the providers of the risk capital and they, along with their advisers, are interested in information which enables them to assess the risk inherent to, and the return provided by, their investments. Financial information will help present investors to determine whether they should hold, sell, or increase their investments. Potential investors, on the other hand, will be able to determine whether or not they should buy an investment.
2. Employees. Employees and their representative groups are interested in information about the stability and profitability of their employers. The information provided by the financial statements helps them assess their employer's ability to provide just remuneration, viable retirement benefits and possible employment opportunities.
3. Lenders. Suppliers and other trade creditors. Financial statements provide lenders, suppliers and other trade creditors financial information necessary in determining whether their loans, related interest and all amounts owing to them will be paid when due. Potential lenders and creditors are guided by the information provided by the financial statements whether or not they would extend credit or loan to the enterprise.

Information Needs of the Data- Users

The process of making intelligent financial decisions requires the use of relevant, reliable, understandable, and comparable financial data. Such data generally come from the end-products of the recording, classifying and summarizing processes- the financial reports and statements. These general-purpose financial statements are prepared and presented at least annually. They are the means through which certain common financial information needs of a wide range of data-users are communicated. These financial statements are also used in assessing the business enterprise's accountabilities and responsibilities to other.


Accounting provides the many interested data-users- both the insiders and outsiders- the following basic quantitative information related to:

Definitions of Accounting

Accounting is a very useful communication tool both in the business and business world. It is a special kind of language. It is a tool that enables us to communicate to various interested parties or data-users certain quantitative information about the financial activities of a business enterprise.


Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic entities, which is intended to be useful in making economic decisions.