Objectives of GPFRs in AASB and IASB - Essay Example

Objectives of GPFRs in AASB and IASB Introduction: Accounting plays a very important role in every company. Financial accounts of a company are designed not only to help the company but also provide information to other stakeholders like customers, employees, investors, etc. The International Accounting Standard Board (IASB) has made various proposals to improve the conceptual framework for financial reporting. This report aims at understanding the concept of General Purpose Financial Report (GPFR), and the objectives set down by both the Australian Accounting Standard Board (AASB) and the International Accounting Standard Board (IASB). It is to be noted that both the boards have set down the objectives of General Purpose Financial Reports on different basis. The further sections of this report focus on the helpfulness of the objectives set down by International Accounting Standard Board to improve the general purpose financial report. There are several questions that have been raised regarding the usefulness of the objectives. A comparison of the objectives of both the Australian Accounting board and the International Accounting board is made to analyze which one of the two is better suited as objectives for the general purpose financial report. The next section deals with the meaning of general purpose financial report and helps understand the main reason why these reports are produced. Uses of General Purpose Financial Reports (GPFR): General Purpose Financial Reports are prepared focusing on the requirements of users who require understanding the company’s financial status. This report provided the common information to users who cannot prepare specific information to meet their needs. There are a few financial entities that are authorized to prepare these reports. Since these reports are very general most of the time these reports focus on general information of the company which benefits only a few groups of people. The main users of General Purpose Financial Reports are divided into three main categories namely Resource providers like employees, lenders, supplier, lenders, investors, etc. These groups of people are interested in knowing the financial status of the company to understand whether the resources provided are being put to efficient use and if the company is performing economically, efficiently and effectively (CPA Australia, 2002). Recipient of goods and services like consumers, customers, or any person benefiting from the goods or services provided by the reporting entity. The report helps the recipients to judge the performance of the entity and decide whether or not to buy the goods and services from the entity. Recipients are also likely to be interested in understanding whether or not the entity achieves its objectives and if the entity is functioning economically and effectively since it would have a direct effect on the prices of the goods and services (CPA Australia, 2002). Reviewers and oversight function are the last set of people who are interested in the general purpose financial reports of the entity. These reports help the reviewers get a clearer view of the functioning of the company and to check if the entity is operating in the interest of members of the community (CPA Australia, 2002). General Purpose Financial Reports and the Accounting Boards: The Australian Accounting Standard Board has set down objectives for the general purpose financial reports. According to the Australian Accounting Standard Board the main objective of the General Purpose Financial Report is to provide relevant and reliable information. The main aim of the report is to help users understand the current position of the company and make informed decisions regarding the allocation of resources. The main characteristics that have been focused by the Australian Accounting Standard Board are understand-ability, relevance, comparability and reliability. Hence the reports include the annual reports of the company which need to be provided during the annual meetings (SAC2, 2008). The International Accounting Standard Board on the other hand has proposed to improvise the objectives of the General Purpose Financial Reports. The International Accounting Standard Board has focused on improving the General Purpose Financial Reports for potential investors and lenders. They suggest that the report aims at these groups of individuals to help them make informed decisions regarding their capital investments (IASB, 2008). There have been various questions being raised on the rightness of the International Accounting Standard Board’s proposal. However it is quite clear from the objectives that the Australian Accounting Standard Board’s is to help every individual use the General Purpose Financial Reports rather than concentrating on any particular group. Also the information provided in the General Purpose Financial Reports is meant for all groups to help everyone have a better understanding of the company and make informed decisions based on this report since it is simple and clear. The International Accounting Standard Board’s proposal however aims only at a particular group i.e. the investors. This however may not be the best idea since it does not aim at reaching out to the general public and aims only at one group of people - the investors. Using a General Purpose Financial Report for a focused group will not help since the information to other groups of people who require simple information will not be provided and will cause the other user of General Purpose Financial Reports to miss out on the financial data of the company to make informed decisions regarding the resources allocation (Mills et. al, 2003). Conclusion: It is very clear from the objectives that the Australian Accounting Standard Board has taken into account the general public, who have no or very little knowledge about the financial statements of a company, however the International Accounting Standard Board has focused mainly on the investors. The Australian Accounting Standard Board’s objectives even though aim at keeping it simple and short can also cater to the needs of the investors, however the International Accounting Standard Board’s objectives narrows the usefulness of the report to the investors alone. If the International Accounting Standard Board’s objectives are followed the general public would find it very difficult to utilise these reports. The main aim of producing the General Purpose Financial Reports is to provide relevant information to all the user groups in a simple and effective manner. This however has not been catered to by any one of the objectives. The ideal General Purpose Financial Report would be one which caters to the needs to the general public as well as the investors, i.e. one report which would cater to the needs of all the users. References CPA Australia, 2002, ‘Objectives of general Purpose Financial Reporting’, Accessed on 1 September 2008, retrieved from http://www.cpaaustralia.com.au/cps/rde/xchg/SID-3F57FECB-018E27D7/cpa/hs.xsl/727_3055_ENA_HTML.htm IASB, 2008, 'Exposure draft of: An improved Conceptual Framework for Financial Reporting', May 2008, International Accounting Standards Board Mill, D., Call, W., Drew, A., 2003, ‘Foundations of Accounting’, 9th Edition, UNSW Press, Sydney SAC 2, 2008, ‘Objective of General Purpose Financial Reporting’, Australian Accounting Standard board, Accessed on 30 September 2008, Retrieved from http://reference.aasb.gov.au/public_docs/concept_statements/SAC2_8-90_2001V.pdf Read More