There are three clear objectives of financial reporting.
- The first objective of financial reporting is to provide investors, creditors and other users with reports that can be used to make reasonable investment and credit decisions. The information needs to be comprehensible to those who have an understanding of business and economic activities (CPA’s, CFO’s, etc.).
- The second objective of financial reporting is to provide investors, creditors and other users the ability to determine and forecast the timing and uncertainty of future cash flows. The ability to predict future cash flows is essential for investors regarding dividend payouts. The ability to pay back loans is useful for creditors to determine which entity qualifies for loans.
- The third and last objective of financial reporting is to provide users with an accurate snapshot of all the economic resources an entity owns, including its obligations and investments.
In order to do so, there needs to be single set of standards available to for all entities to follow. Users of financial statements expect them to be presented fairly, clearly, accurately, and completely portray the overall financial well-being of an entity. Therefore there has been an increase emphasis on the consolidation of accounting principles on an international level, International Financial Reporting Standards (IFRS).