Introduction: The objective of financial reporting, which includes the production and dissemination of financial information about the company in the form of financial statements, is to provide useful information to investors, creditors, and other interested parties
Also, financial reporting provides useful information about the firm’s economic resources, claims against those resources, owners’ equity, and changes in resources and claims. Perfectly, financial reporting provides company shareholders and other stakeholders like employees, communities, customers, and suppliers. With information that aids in the prediction of the amounts, timing, and uncertainty of future cash flows.
In addition, financial statements disclose details concerning economic resources and the claims to those resources.
By rules – on the based of the Financial Accounting standards Board (FASB) concluded that financial reporting should have such basics objectives that are (I.) The information is useful to those making investment and credit decisions. (II) The financial reports are helpful in assessing future cash flows.(III.) The economic resources (assets), the claims to those resources (liabilities), the changes in those resources and claims are clearly identified. The Financial Accounting standards Board (FASB) then undertake to describe the distinctiveness that make accounting information useful.
Objectives of reporting:
1. Financial reporting should provide information that is functional to present and probable investors and creditors and other users in making rational investment credit and similar decisions. As well that information should be understandable to those who have a rational sympathetic of business and economic activities and are enthusiastic to study the in sequence with reasonable attentiveness.
2. Financial reporting should provide information that is useful to present and possible investors and creditors and other users in assessing the amounts, timing, and indecision of forthcoming cash receipts from dividends or interest and the proceeds from the sale, redemption, or maturity of securities or loans. Other than The ultimate test or success of investing, lending, and similar activities is the extent to which they return more cash than they cost. Although a successful investor or creditor receives not only a return of investment but also a return on investment
3. Financial reporting should provide information about an endeavor economic resources, obligations, and owners’ fairness that would be (I) help recognize the enterprise’s financial strengths and weaknesses and review its liquidity and solvency. (II) Provides a basis to evaluate in sequence about the enterprise’s performance during a period (III) provides direct indications of the cash flow potentials of some resources and of the cash needed to gratify many, if not most, compulsions.
4. Financial reporting should provide information about liquidity, solvency, and finances flows. That provides information about how an enterprise obtains and spends cash, about its borrowing and reimbursement of borrowing, and its capital transactions, including cash dividends and other distributions of enterprise resources to owners and about other factors that may affect an enterprise’s liquidity or solvency.
5. Financial reporting should provide information about how management of a venture has discharged its stewardship responsibility to owners for the use of enterprise resources delegated to it. besides Management is accountable to the owners not only for the custody and safekeeping of enterprise resources but also for their competent and profitable use and for protecting them to the extent possible from unfavorable economic collisions of factor in the economy such as inflation or devaluation and technological and social changes.
6. Financial reporting should provide information that is functional to managers and directors in making decisions in the interests of owners.
Conclusion: the objectives of financial reporting, the board careful the economic, legal, political, and social environment. The objectives would be quite different in a socialist economy where the majority of fruitful resources are government owned. the objectives is an overall societal goal of serving the public interest by providing evenhanded financial and other information that, together with information from other sources, facilitates efficient functioning of capital markets and otherwise assists in promoting efficient capital allocation of scarce resources in the economy.
The importance to our economy of providing capital market participants with information was discussed previously, as were the specific cash flow information needs of investors and creditors, Communicative this significance and investor and creditor.
