Objective of Financial Statements- a Critical Review

2729 Words Apr 30th, 2006 11 Pages
The management of all listed companies registered in UK are bound by law to prepare and provide financial statements for each accounting period. This has been the case since the conception of ‘The Companies Act 1948' (Flint, 1982), last amended in 1985. Although it's been over 55 years of reporting entities preparing financial statements, the objective of these statements has always been a matter of discussion. The Accounting Standards Board (ASB) came up with a precise outline in 1999 which stated "The objective of financial statements is to provide information about the reporting entity's financial performance and financial position that is useful to a wide range of users for assessing the stewardship of the entity's management and for …show more content…
Astrazeneca's cash flow statement for instance shows that the net cash inflow from operating activities for 2004 was $6,061 million while the same for 2003 was $4,226. Suggesting that the net cash flow from operations was stronger and much larger than the profit. This is expected in most cases as depreciation is deducted in arriving at profit.

From the above discussion it is clear that the fundamental objective of a financial statement is to provide an interim measure of the enterprise progress (AICPA, 1973).Moreover, the statements provided by Astrazeneca are in coherence with the above deduction. This leads us into the question of who produces these reports.

The Reporting Entity

Financial statements are prepared by many organisations, e.g. banks, trusts, charities, incorporated entities etc. but the main focus of this essay is going to be the financial statements published by the listed companies. These are generally referred to as ‘Reporting Entities' as mentioned in the ASB statement above.

Reporting entity refers to organisations that publish its financial information in accordance with certain accounting standards for e.g. ASB standards called the financial reporting standards (FRSs). Astrazeneca prepares its financial statements according to The Company Act, 1985 and UK generally accepted accounting principles (UK GAAP). Hence, a reporting
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