4241: FINANCIAL ANALYSIS

Chapter # 03
Accounting Objectives, Conventions &
Standards

Prepared by:
MD. IMRAN HOSSAIN
Assistant Professor
Department of Finance
University of Dhaka
imran@du.ac.bd

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Q1: Basic purposes of Financial accounting or Financial
Statements (P-43)

1. To provide information useful for making economic decisions.

2. To provide information useful to investors and creditors for predicting,
comparing and evaluating potential cash flows to them in terms of
amount, timing and related uncertainty.

3. To provide users with information for predicting, comparing and

evaluating enterprise earning power.

Prepared by: MD. IMRAN HOSSAIN,

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Lecturer, Finance, DU
Q2: Purpose of the FASB conceptual framework (P-44)

FASB = Financial Accounting Standards Board

1. To establish a consistent financial accounting and reporting system for all

companies

2. To guide the selection, measurement, summarization and communication of

the events
3. To enable investors, creditors and others to obtain increased understanding
and confidence in financial reporting.

4. To promote acceptability and comparability of accounting methods

5. To provide a framework for judgments and personal opinion

Prepared by: MD. IMRAN HOSSAIN,

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Lecturer, Finance, DU
 Q3: Salient features of SFAC- 1 (P-44)

FASB established SFAC = Statements of Financial Accounting Concepts

SFAC-1: “Objectives of Financial Reporting by Business Enterprises”

Features:
1. Financial reporting can best serve investors and creditors by facilitating
the prediction of the amount, timing and uncertainty of future cash flows
to the business entity.
2. It should provide information about the economic resources of an
enterprise, the claims to those resources and the effects of transactions.
3. To provide information about the firm’s earnings and its components.
4. To provide information about the financial performance of a firm during
a period.

Prepared by: MD. IMRAN HOSSAIN,

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Lecturer, Finance, DU
 Q4 & 5: Characteristics / Qualities of accounting
information in SFAC- 2 (P-45)
SFAC-2: “Qualitative Characteristics of Accounting Information”

Characteristics / Pervasive Qualities:

1. Understandability

2. Relevance
3. Reliability
4. Comparability or Consistency

5. Materiality

Prepared by: MD. IMRAN HOSSAIN,

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Lecturer, Finance, DU
Q6: Elements of Financial statements in SFAC- 3 (P-48)

SFAC-3: “Elements of Financial Statements of Business Enterprise”

10 elements to be included in financial statements such as:
1. Assets
2. Liabilities
3. Equity
4. Owners’ investment
5. Distribution to owners
6. Comprehensive income
7. Revenues
8. Expenses
9. Gains
10. Losses

Prepared by: MD. IMRAN HOSSAIN,

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Lecturer, Finance, DU
 Q7: Full set of financial statements in SFAC- 5 (P-51)

SFAC- 5: “Recognition & Measurement in Financial Statements of

Business Enterprises”

Five sets of financial statements:

1. Financial position at the end of the period (Balance Sheet)
2. Earnings for the period (Income Statement)
3. Comprehensive income for the period (Comprehensive Income
Statement)
4. Cash flows during the period (Cash Flow Statement)
5. Investments by and Distributions to owners during the period (Changes
in Owner’s Equity)

Prepared by: MD. IMRAN HOSSAIN,

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Lecturer, Finance, DU
 Q8: Criteria for an item to be included in the financial
statements in SFAC- 5 (P-52)

SFAC- 5: “Recognition & Measurement in Financial

Statements of Business Enterprises”

Four criteria for an item to be included in the financial

statements:

1. Meet the definition of an element of financial statements as defined by SFAC- 3.

2. Measurable

3. Relevant

4. Reliable
Prepared by: MD. IMRAN HOSSAIN,
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Lecturer, Finance, DU
KULLU KHALASH!!!!

Prepared by: MD. IMRAN HOSSAIN,

9
Lecturer, Finance, DU.