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
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- 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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