Financial statement

presentation
CHAPTER 2
CHAPTER OUTLINE
 Purpose and Scope of Financial Statements
 What information can be derived from Financial Statements & Reports
 Qualitative Characteristics of Financial Information
 Reporting Period, Perspective, and Going Concern
 The Reporting Entity, Consolidated and Unconsolidated FS
 Financial Statement Elements
 Recognition and Derecognition
 Presentation and Disclosure, Classification and Aggregation
PURPOSE AND SCOPE OF FINANCIAL
STATEMENTS AND REPORTS
The objective of general purpose financial reporting is to provide
financial information about the reporting entity that is useful to
existing and potential investors, lenders and other creditors in
making decisions relating to providing resources to the entity.
Those decisions involve:
(a) buying, selling or holding equity and debt instruments;
(b) providing or settling loans and other forms of credit; or
(c) exercising rights to vote on, or otherwise influence,
management’s actions that affect the use of the entity’s
economic resource
INFORMATION THAT CAN BE DERIVED
FROM FINANCIAL STATEMENTS AND
REPORTS
• Economic Resources and Claims
• Changes in these economic resources and claims
• Financial performance reflected by accrual accounting
• Financial performance reflected by past cash flows
• Changes in economic resources and claims not resulting from
financial performance
• Information about use of the entity’s economic resources
FUNDAMENTAL QUALITATIVE
CHARACTERISTICS OF USEFUL
FINANCIAL INFORMATION
• RELEVANCE - capable of making a difference in
the decisions made by users
• MATERIALITY - omitting, misstating or obscuring
it could reasonably be expected to influence
decisions that the primary users of general purpose
financial reports
• FAITHFUL REPRESENTATION - must not only
represent relevant phenomena, but it must also
faithfully represent the substance of the phenomena
that it purports to represent
 QUALITATIVE CHARACTERISTICS
THAT ENHANCE THE USEFULNESS OF
FINANCIAL INFORMATION
• COMPARABILITY - enables users to identify and
understand similarities in, and differences among, items
• VERIFIABILITY - helps assure users that information
faithfully represents the economic phenomena it purports to
represent
• TIMELINESS - having information available to decision-
makers in time to be capable of influencing their decisions
• UNDERSTANDABILITY - Classifying, characterizing and
presenting information clearly and concisely makes it
understandable
REPORTING PERIOD
FUTURE AND OTHER POSSIBLE
TRANSACTIONS
THE BOUNDARIES OF A REPORTING
ENTITY
QUALITIES OF AN ASSET
• RIGHTS
• POTENTIAL ECONOMIC
BENEFIT
• CONTROL
QUALITIES OF A LIABILITY
• OBLIGATION
• TRANSFER OF AN ECONOMIC
RESOURCE
• PRESENT OBLIGATION AS A RESULT
OF PAST EVENTS
ATTRIBUTES OF ASSETS AND
LIABILITES
• UNIT OF ACCOUNT
• EXECUTORY CONTRACT
• SUBSTANCE OF CONTRACTUAL
RIGHTS AND CONTRACTUAL
OBLIGATIONS
RECOGNITION CRITERIA &
CONSIDERATIONS
• RELEVANCE
• EXISTENCE UNCERTAINTY
• LOW PROBABILITY OF AN INFLOW OR
OUTFLOW OF ECONOMIC BENEFITS
• FAITHFUL REPRESENTATION
• MEASUREMENT UNCERTAINTY
MEASUREMENT BASES
• HISTORICAL COST
• CURRENT VALUE
• FAIR VALUE
• VALUE IN USE AND
FULFILLMENT VALUE
• CURRENT COST
 CHECK UP QUIZ (10 points)
 What is the main purpose of financial statements? (2 points)
 Give two examples of information that can be derived from financial statements
and reports. (2 points)
 This fundamental qualitative characteristic of financial information means that
information is capable of making a difference in the decisions made by users. (1
point)
 Yes or No. Timeliness is one of the qualitative characteristics that enhance the
usefulness of financial information. (1 point)
 Yes or No. Information about future and other possible transactions is to be
presented if it is useful to preparers of the financial statements. (1 point)
 Define the going concern assumption. (2 points)
 Give two qualities of an asset. (2 points)
THANK YOU