FASB rethinks the objective of financial reporting

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07 Sep 2007

At its meeting on 29 August 2007, the US Financial Accounting Standards Board redeliberated issues related to the objective of financial reporting – the basic building block of the conceptual framework that FASB and IASB are jointly developing.

Specifically, the FASB addressed (1) concerns raised by respondents about the role of stewardship in the objective of financial reporting and (2) the logical flow of Chapter 1 of the FASB's Preliminary Views. FASB's Action Alert of September 6, 2007 reports the following decisions:

FASB conclusions on the objective of financial reporting:

  1. The objective of general purpose external financial reporting is to provide financial information about the reporting entity that is useful to present and potential investors and creditors in making decisions in their capacity as capital providers.
  2. Chapter 1 of the Exposure Draft should be structured as follows so that it flows logically from the premise that the basic perspective of financial reporting is that of the entity.
    1. The basic perspective underlying financial reporting is the perspective of the reporting entity.
    2. That entity perspective involves reporting on the entity's resources (assets), the claims on the entity's resources (liabilities and equity), and the changes in them.
    3. The primary user group comprises those who have a claim (or potentially may have a claim) on the entity's resources – its present and potential equity investors and creditors (capital providers). The objective of financial reporting is focused on meeting the information needs of the primary user group.
    4. The primary user group is interested in financial information because that information is useful in the decision making of investors and creditors in their capacity as capital providers.
    5. The decisions made by investors and creditors include resource allocation decisions as well as decisions relating to protecting or enhancing their claim on the resources of an entity.
    6. Investors and creditors use information about an entity's resources, claims to those resources, and changes in resources and claims as inputs into the decision-making process.
    7. Other potential user groups may benefit from financial reporting information, but they are not the focus of the objective.


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