Purpose Financial Reporting

Introduction

Understanding the financial statement helps the users of the financial data or statements or the stakeholders in making various important decisions. Sometimes, the users may face difficulties in understanding the financial statements either because they don’t have sound finance knowledge or because they are not from accounting background. To bridge this knowledge and background gap the businesses are required to prepare their financial reports or statements according to the structure of “General Purpose Financial Reporting”. As per the structure of “General Purpose Financial Reporting”, the companies prepare their financial reports or statements in such a way that they become understandable to all the users of financial data or statements.  

Structure of “General Purpose Financial Reporting”

“General Purpose Financial Reports” are prepared and presented by the businesses from time to time to assist the users of financial data or statements in their decision making (Kent, & Stewart, 2018). The “General Purpose Financial Reports” comprises of the below provided elements or statements:

1. Balance sheet
2. Revenue account
3. Changes in the equity 
4. Cash flow statement

Each statement or elements as per “General Purpose Financial Reporting” is prepared with different objective and provide specific information about the financial affairs that have been transacted in the business (Chen, et al. 2010).

Like, Balance sheet/Statement of Financial Position is prepared with motive to show the clear picture or position about the assets or liabilities belonging to the business. Income statement or revenue account is prepared to show the performance of the business by disclosing the sources of revenue and the cost incurred by the business. Statement of changes in Equity is prepared to show the changes in the ownership position in terms of retained earnings. Cash flow charts (CFS) is prepared to show the inflow or outflow of the cash for the business (Li, 2010).

 “General Purpose Financial Reporting”

Definition

“General Purpose Financial Reporting” is referred to a reporting framework according to which the statements of financial data is prepared by the businesses to cater the need of financial data or statements of wider range of users. The “General Purpose Financial Reports” comprises of the below provided elements or statements (Epstein, & Jermakowicz, 2010).

1. Balance sheet/Statement of Financial Position
2. Income Statement/Statement of Financial performance
3. Statement of changes in Equity
4. Cash Flow Statements/Statement of Cash Flows
5. Audit Report, if the business has undergone the Audit

Description

As per the framework of “General Purpose Financial Reporting”, the statements of financial data is prepared to present or show the below provides aspects for the business:

1. Accountability Aspect: The statements of financial data is prepared to be accountable to the users by provides the true & fair information about the affairs of the business (Ball, 2016).
2. Compliance Aspect: The statements of financial data is prepared in compliance with the applicable rules or regulations and standards issued by the Australian Accounting Standard Board (AASB) and on the accrual basis of accounting.
3. Financial Position of the Business: The statements of financial data is prepared to disclose the exact position of the business in terms of assets held by it and the liabilities that belongs to the business. This analysis helps the users in determining the value of business (Barth, 2018).
4. Financial Performance of the business: The statements of financial data is prepared to show the performance of the business in terms of generating revenues and controlling the costs of the business.

Balance sheet/Statement of Financial Position is prepared with motive to show the clear picture or position about the assets or liabilities belonging to the business. Income statement or reveune account is prepared to show the performance of the business by disclosing the sources of revenue and the cost incurred by the business. Statement of changes in Equity is prepared to show the changes in the ownership position in terms of retained earnings. Cash flow charts (CFS) is prepared to show the inflow or outflow of the cash for the business (Potter, Pinnuck., Tanewski, & Wright, 2019).

Critical Discussion

The main users for the financial data or statements are the lenders, suppliers, investors, shareholders, government, customers and management. Every users use the financial data or statements with different motive. Like, lenders uses the information to assess the risk involved in lending the money to the business, government uses the financial data or statements to check the tax liabilities of the business along with checking whether business is running as per the applicable rules or regulations, suppliers use the financial data or statements to know whether business will be able to pay the amounts for its purchases of materials, shareholders use the financial data to analysis the earnings or returns, etc. Hence, it is difficult for the business to prepare the financial statements. Therefore, the business prepares and presents a common set of financial reports or statements that comprises of the financial data or statements for each of the users (Kicová, 2017).

Identification

As it is difficult to prepare separate financial books of accounts for every need of the users of the financial data or statements, the entities identifies the common needs of the users and prepare & presents a set of financial reports or statements to cater the maximum needs of the users in respects of the financial transactions that have been affected in the business (Drake, Hales, & Rees, 2019). lenders uses the information to assess the risk involved in lending the money to the business, government uses the financial data or statements to check the tax liabilities of the business along with checking whether business is running as per the applicable rules or regulations, suppliers use financial data whether business will be able to pay the amounts for its purchases of materials, shareholders use the these financial data to assess  their earnings or returns, management uses the financial data or statements to take the necessary business decision in guidance of the Board, the customer needs financial data or statements to know the qualities measures that company is taking in manufacturing of the products and rendering of the services, investors need financial data or statements to assess the return and risk elements associated with the affairs of the business. Hence, each user of the financial data or statements has its own need (Drake, Hales, & Rees, 2019). To cater the maximum needs of the users, the common needs are identified by the entities and to fulfil them the statements of financial data is prepared (Western areas limited, 2020).

Purpose of General Purpose Financial Reporting

The primary purpose of GPFR is to provide the financial data or statements about all the transactions getting affected in the business along with the transactions getting affected at all the branches of the business in accordance with the governing accounting standards issued by the Australian Accounting Standard Board (AASB) and rules & regulations. The financial data or statements is provided by the business by way of preparing and presenting the financial reports or statements (Drake, Hales, & Rees, 2019).   

 The “General Purpose Financial Reports” comprises of the below provided elements or statements:

1. Balance sheet/Statement of Financial Position
2. Income Statement/Statement of Financial performance
3. Statement of changes in Equity (Western areas limited, 2020).
4. Cash Flow Statements/Statement of Cash Flows
5. Audit Report, if the business has undergone the Audit

Each of the statements shows specific aspect of the business affairs.

Purpose of Balance sheet/Statement of Financial Position

The Balance sheet/Statement of Financial Position is prepared to the financial position of the business in context of the assets that are owned by the business on specific date, the equity element existing in the business and the liabilities that needs to get paid in the coming year(s). The assets and liabilities are classified in the current and non-current categories in presentation of the financial reports or statements (Western areas limited, 2020). The Current category is the one that tells that the assets will be realised within the span of coming 12 months and the liabilities will be paid within in the span of the coming 12 months. The non-current category is the one that tells the assets will be realised after 12 months and the liabilities will be paid after 12 months (Western areas limited, 2020).Also, the figures of the previous years are mentioned in Balance sheet/Statement of Financial Position with the figures of current year so that a comparison may be made by the users. To illustrate the details about Balance sheet/Statement of Financial Position, below is the screenshot from the financial reports of Western Areas Limited (Western areas limited, 2020).

Source: (Western areas limited, 2020).

The current assets for the Western Area Limited are of $189,671,000 in year 2019 and $208,657,000 in year 2018. The non-current assets for the Western Area Limited are of $596,530,000 in year 2019 and $571,930,000 in year 2018. The current liabilities for the Western Area Limited are of $53,449,000 in year 2019 and $47,769,000 in year 2018 (Western areas limited, 2020). The non-current liabilities for the Western Area Limited are of $501,577,000 in year 2019 and $488,812,000 in year 2018 (Western areas limited, 2020).

Purpose of Income Statement/Statement of Financial Performance

The Income Statement/Statement of Financial Performance is prepared by the business to show the financial performance of the business in terms of the generating the revenues and controlling the expenses for the business. To illustrate the details about Income Statement/Statement of Financial performance, below is the screenshot from the financial reports of Western Areas Limited (Western areas limited, 2020).

Source: ( Western areas limited, 2020).

The revenues are generated by the operations of the business and from the other sources. In the above statement, the total revenue of the Western Areas Limited includes revenue from the operations at sum of $268,716,000 in year 2019 and 248,268,000 in year 2018, and income from other sources at sum of $5,148,000 in year 2019 and $3,494,000 in year 2018 (Western areas limited, 2020).

The total expenses incurred for Western Areas limited has also been shown in the above screenshot. The balance of the revenues and expenses is the profit for the company. The company has earned profits of $14,194,000 in year 2019 and $11,837,000 in year 2018 (Western areas limited, 2020).

Purpose of Statement of changes in equity

The Statement of changes in equity is prepared and presented to show the changes in the ownership position of the shareholders in the business. To illustrate the details about Statement of changes in Equity, below is the screenshot from the financial reports of Western Areas Limited (Western areas limited, 2020).

Source: ( Western areas limited, 2020).

Purpose of Cash Flow Statements/Statement of Cash Flows

Cash flow charts (CFS) is prepared the flow of cash towards entity and from the company. To illustrate the details about Cash flow charts (CFS), below is the screenshot from the financial reports of Western Areas Limited.

Conclusion

The primary purpose of General Purpose Financial Reporting is to provide the financial data or statements about all the transactions getting affected in the business along with the transactions getting affected at all the branches of the business in accordance with the governing accounting standards issued by the Australian Accounting Standard Board (AASB) and rules & regulations. From the above discussion, it may be concluded that the financial reports/statements as per “General Purpose Financial Reporting” are prepared to cater the common needs of the users and these reports/statements comprise different elements that provided specific details about the affairs of the business.