January 26, 2022

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Meaning General Purpose Financial Statements according to IAS 1 and Key Explanations

Meaning General Purpose Financial Statements according to IAS 1 and Key Explanations
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Financial statements are mandatory to be prepared and presented by every registered business. These statements throw major lights on a business’s health. Although it is statutory, it is of good faith if businesses that are not registered with the Corporate Affairs Commission (CAC) utilize the power of these reports. In this article, let’s examine the meaning of general purpose financial reports according to the International Accounting Standard (IAS 1).

Definition of General Purpose Financial Statements

According to the International Accounting Standard (IAS 1) the “General purpose financial statements (referred to as ‘financial statements’) are those intended to meet the needs of users who are not in a position to require an entity to prepare reports tailored to their particular information needs.”

Key Explanations

The general purpose financial statements are statements are statements of financial position, statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flow. This statement measures a business’s health. A statement of financial position measures the financial position of the business as at a certain date. Profit statement shows the financial performance, changes in equity tells us what the line items that affects the equity of the entity. And a statement of cash flow shows how cash and its equivalents are utilized by the company’s management during the year.

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Meaning General Purpose Financial Statements according to IAS 1 and Key Explanations

Needs of users. Users of financial statements include actual and potential investors, the board of directors, management, employees, customers, suppliers, creditors and bankers, government and its agencies, financial analysts, media and other stakeholders not mentioned. These users are made up of internal and external users. Internal users are those whose decision can easily be influenced by the entity’s management. Example is employees. And external users cannot be influenced by management. However, these users’ decisions can have a great impact on the business. It may build or end the entity.

The users cannot request for special reports. In the aforementioned users, there are some who have the power to request for certain types of reports from the company’s accounting information system. Two of such users are the board of directors and bankers. The board can request virtually any kind of reports. Most banks request for bank statements, statement of cash flow, collateral details and so on.

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But, other users cannot request for special types of reports. It is these users that a general purpose financial reports are prepared and presented. One of these users is potential investors. Therefore, the statements must be tailored to meet all these users. And such reports must be free from bias. That is, it should not favour one user at the expense of the others.

Conclusion

The general purpose financial statements are prepared and presented by the chief executive officer of the company. Such a report is expected to meet the needs of users who are not in a position to ask for a specific type of information from the business. Also, the statements must be free from bias. That is, it should suit all users’ needs.

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