CH1. Objective of Financial Reporting

Objective:  Provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in making decisions about providing resources to the entity.

The decisions involve buying, selling, or holding equity and debt instruments, and providing or settling loans and other forms of credit.

1. General-purpose financial statements

Provide financial reporting information to a wide variety of users. (재무 보고 정보는 다양한 사용자에게 제공되어야 함)

Provide the most useful information possible at  the least cost. (가장 낮은 비용으로 가능한 한 유용한 정보를 제공 )

Ex, shareholders, creditors, suppliers, employees, and regulators to better understand its financial position and related performance.

2. Equity investors and creditors

Identifies investors and creditors(투자자와 채권자) are the primary user group for general-purpose financial statements.

The primary focus is on investors and creditor because they have the most critical and immediate need financial reports for company’s ability to generate future net cash inflows

3. Entity perspective

Companies are viewed as separate and distinct(별개이자 독립된 존재) from their owners (present shareholders) using this perspective.

The assets of Samsung are viewed as assets of the company and not a specific creditor or shareholder. They have claims on its assets in the form of liability or equity claims.

4. Decision-usefulness

Investors are interested in assessing
1)the company’s ability to generate net cash inflows (기업의 순현금 유입 창출 능력) 
2) management’s ability to protect and enhance the capital providers’ investments.
(투자를 보호하고 증대시키는 경영진의 능력)

Financial reporting should help investors assess the amounts, timing and uncertainty of prospective cash inflows from dividends or interest, and the proceeds from the sale, redemption, or maturity of securities or loans.
(Financial reporting은 투자자들이 배당금이나 이자에서 발생하는 미래 현금 유입의 금액, 시기, 불확실성을 평가할 수 있도록 도와야 하고 수익에 대한 정보(증권, 대출 매각, 상환, 만기)도 제공해야 함.

The economic resources, the claims to those resources and the changes in them must be understood. Accrual basis accounting(발생기준회계) makes “better assessing cash flows prospects(전망)” than cash basis(현금기준회계)