May 28, 2022

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PURPOSE OF FINANCIAL STATEMENT AS EXPLAINED IN IAS 1

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PURPOSE OF FINANCIAL STATEMENT AS EXPLAINED IN IAS 1



Financial statements are great tools in the hands of its varieties of users. Financial statements are used to make well informed economic decision.

Actual and potential investors as well as other users of financial statements do not have any best available option than the financial statement.

Financial statements provide a general form of data that can be digested by a wide range of uses. This data includes: Assets, Liabilities, equity, income and expenses, gains and losses, contribution from and distribution to owners in their capacity as owners and cash flows.

According to International Accounting Standard (IAS) 1, the purpose of financial statements are as follows:

1. To provide financial performance, financial position and cash flow of a company to a wide range of users.

2. To enable users make informed economic decisions.

3. Financial statements shows the stewardship of management of a company. Its tells us if management are diligent and efficiently carrying out their tasks.

4. Information provided by the financial statement can be used for prediction. It can be used to monitor future cash flow, timing and uncertainty.

IAS1 also states the first three purposes as objectives of financial statements.

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