Objective of GPFR Essay examples

Submitted By yoona1
Words: 907
Pages: 4

Objectives of GPFR
The conceptual framework (CF) is a logical guideline of interrelated objectives and fundamentals that are expected to lead to consistent accounting standards and underlie the preparation and presentation of financial reports. Only CF and SAC 2 deal with the objective of GPFR (Mala 2013, pp. 12-6).
There is no clear definition of the objectives of GPRF in the Conceptual Framework but according to the CF’s guideline and SAC 2 there are few objectives that GPRF should be met:
OB1. GPFR should be able to provide useful financial information to potential and existing investors, capital providers and lenders in order to assist them in making investment decision on a certain entity (IASB 2010, p.27). Potential and existing investors are mainly interest in entity’s ability to generate positive cash flow, for example dividend payment or market price increases (IASB 2010, p.27). Similarly, potential and existing lenders and creditors will provides capital provision to entity, only if they can expect return through interest payments and other form of returns (IASB 2010, p.27). This has shows that potential and existing investors, creditors and lenders relies on GPFR to help them assess the future prospects of entity net cash inflows.
OB2. Existing and potential investors, lenders and other creditors are also interest on information regarding management’s ability to protect and improve entity’s resource and their capital investment in an efficiently and effectively manners (IASB 2010, p.27). For examples submit to laws and contractual provisions, and ability to manage the business during economic downturn (IASB 2010, p.27).
OB3. The primary users of GPFR are existing and potential investors, lenders and other creditors as they cannot directly ask entity to provide information directly to them. This shows that existing and potential investors, lenders and other creditors rely heavily on GPFR for financial information (IASB 2010, p.27). However, investors, lenders and other creditors cannot only rely on GPFR when making investment decision, they need to look at other factors such as current and future economic condition (IASB 2010, p.28).
OB4. Different users have different needs of information, but GPFR does not provides financial information according to individual users needs, however, GPFR provide the most common information needs by all of the users (IASB 2010, p.28). The information mainly focuses on area that can help existing and potential investors, lenders and other creditors to evaluate the ability of a firm to generate cash and meet future obligations (IASB 2010, p.28). 2.2 Qualitative characteristics of useful financial information
There are six qualitative characteristics that financial information should have in order to be useful financial information according to the International Accounting Standard Board’s (IASB) CF (Mala 2013, p.18). The qualitative characteristics are relevance, faithful representation, comparability, verifiability, timeliness and understandability. Relevance and faithful representation are fundamental qualitative characteristic, while others are enhancing qualitative characteristics (Mala 2013, p.18). Fundamental qualitative characteristics
Relevance: financial information that can make a difference in users decision-making whether they choose to use it or not. For the information to be relevance to users decision, it must have predictive value and/or confirmatory value (IASB 2010, p.33). For instance, the sale revenues for the current year can help or used as a basis to predict the future sale revenues. The result for the evaluation will help users to improve or correct their decision (IASB 2010,