Objective of financial statements

1. Financial position

The financial position of an enterprise is affected by the economic resources it controls, its financial structure, its liquidity and solvency and its capacity to adapt to changes in the environment in which operates.

2. Performance

Performance is the ability of an enterprise to earn a profit on the resources that have been invested in it. Information about the amounts and variability of profit helps in forecasting future cash flows from the enterprise's existing resources and in forecasting potential cash flows from additional resources that might be invested in the enterprise.

The Framework states that information about performance is primarily provided in an income statement.

3. Changes in financial position

Users in financial statements seek information about the investing, financing and operating activities that an enterprise has undertaken during the reporting period. This information helps in assessing how well the enterprise is able to generate cash and cash equivalents and how it uses those cash flows.

The cash flow statement provides this kind of information.

4. Changes in equity position

IAS 1 adds a fourth basic financial statement, the statement showing changes in equity which details how equity has changed during the financial year.

5. Notes and supplementary schedules

The financial statements also contain notes and supplementary schedules and other information that;

§  Explains items in the balance sheet and income statement

§  Discloses the risks and uncertainties affecting the enterprise

§  Explains any resource and obligations not recognized in the balance sheet