CFA Institute's new comprehensive business reporting model

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20 Aug 2007

The CFA Institute Centre for Financial Market Integrity has published a new financial reporting model that is intended to enhance the ability of financial analysts and investors to evaluate companies in making investment decisions.

The model proposes 12 principles to ensure that financial statements are relevant, clear, accurate, understandable, and comprehensive. The publication – A Comprehensive Business Reporting Model: Financial Reporting for Investors – may be Downloaded from the CFA Institute Website (PDF 590k). It is organised as follows:
  • Chapter 1. Why Does Financial Reporting Matter to Investors and Investment Professionals?
  • Chapter 2. A Conceptual Framework for the Comprehensive Business Reporting Model
  • Chapter 3. The Comprehensive Business Reporting Model – Our Proposals for Revision
  • Chapter 4. Financial Statement Disclosures
The 12 principles are summarised in an appendix. Those principles are listed below. For each principle, the appendix also includes reasons for its importance and a description of current practice and the perceived shortcomings thereof.

CFA Institute's Comprehensive Business Reporting Model: Summary of Principles


  • Principle 1: The primary financial statements must provide the information needed by equity investors, creditors, and other suppliers of risk capital.
  • Principle 2: In financial reporting standard-setting as well as statement preparation, the company must be viewed from the perspective of an investor in the company's common equity.
  • Principle 3: Fair value information is the most relevant information for financial decision making.
  • Principle 4: Recognition and disclosure must be determined by the relevance of the information to investment decision making and not based upon measurement reliability alone.
  • Principle 5: Transactions and events that affect the company's economic position must be recognised as they occur in the financial statements.
  • Principle 6: Investors' information requirements must determine the materiality threshold.
  • Principle 7: Financial reporting must be neutral.
  • Principle 8: All changes in net assets, including changes in fair values, must be recorded as incurred in a single financial statement, the Statement of Changes in Net Assets Available to Common Shareowners.
  • Principle 9: The cash flow statement provides information essential to the analysis of a company and must be prepared using the direct method only.
  • Principle 10: Changes affecting each of the financial statements should be reported and explained on a disaggregated basis.
  • Principle 11: Individual line items should be reported based upon the nature of the items rather than the function for which they are used.
  • Principle 12: Disclosures must provide all the additional information investors require to understand the items recognised in the financial statements, their measurement properties, and risk exposures.



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