Page 102 - DCOM409_CONTEMPORARY_ACCOUNTING

Unit 8: Corporate Reporting

8.3 Objectives of Corporate Reporting/Objectives of Financial Notes
Information

Basically, there are three objectives of financial reporting.
1. To give information useful for making investment and credit decisions. Financial reporting
should offer information that can help present and potential investors and creditors to
make rational investment and credit decisions. The information should be in the form that
is easy and understandable to those who have some understanding of business and are
willing to study the information carefully.
2. To provide information useful in assessing cash flow prospects. Financial reporting should
supply information to help present and potential investors and creditors appraise the
amounts, timing and possible risk of expected cash receipts from dividends or interest and
the proceeds from the sale, redemption or maturity of stocks or loans.
3. To provide information about business resources claims to those resources and changes in
them. Financial information should give information about the company’s assets, liabilities
and shareholders equity.
Financial statements are the most important way of periodically presenting to parties outside
the business the information that has been gathered and processed in the accounting system.
These financial statements are “general purpose” because most of the users are outside the
business. Because of potential conflict of interest between managers, who must prepare the
statements and the investors or creditors, who invest in or lend money to the business, these
statements are often audited by outside accountants (known as auditors) to increase creditability
and reliability.
Objective of General Purpose Financial Reporting identifies the objective of general purpose
financial reporting as the disclosure of information useful to users for making and evaluating
decisions about the allocation of scarce resources. When general purpose financial reports meet
this objective they will also be the means by which preparers of such reports discharge their
accountability to those users. The purpose of this Statement is to identify those attributes
(hereinafter “qualitative characteristics”) that financial information should possess if it is to
serve the specified objective.
Self Assessment

Fill in the blanks:
5. ……………..should give information about the company’s assets, liabilities and
shareholders equity.

6. Financial reporting should offer information that can help present and potential investors
and creditors to make rational investment and ………….decisions.

8.4 Concept of Disclosure in Relation to Publish Accounts

Section 210 of the Companies Act, 1956 stipulates that the board of directors of every company
should submit, before the annual general meeting of the company, a duly audited profit and loss
account and balance sheet. These documents should be placed before the meeting within six
months of the expiry of the financial year. Three copies of the annual reports as approved by the
shareholder are to be filed with the Registrar of Companies within thirty days of the meeting in
which they were approved. The next section, Section 211 lays down that every balance sheet of
a company shall be in the form set out in Part I of Schedule VI attached to the companies act and

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