Financial accounting has key role in different organizations because it helps in tracing financial performance along with its stability. The present report is giving brief discussion about General Purpose financial reports on basis of public companies which has requirement by Corporation Act 2001 as it should be properly communicated to its users. It has reflected its significance with its major importance. In the same series it has justified key differences in General Purpose Financial reports and Special purpose financial reports. Further it has briefed about requirements for producing GPFRs in public entity but not in private entity. It has also elaborated principal component of true and fair view principal need in financial reporting. In the last part, it has stated standards of International accounting with its impact on financial regulation.
Significance of GPFRs
GPFRs is acronym of General purpose financial statements which produces various statements as they are released to wide group of users. It consists of different statements such as:
Statement of shareholder's equity
Statement of cash flows
Usually it had been issued to lenders and investment community. It is applicable for different organizations for forming financial reporting for purpose of communicating its performance to outsiders of organisation. The decisions related to all existing and potential investors related to selling, buying or holding instruments of debt and equity which are expected from purpose of investment in specific instruments such as increase in market price, dividends, principal and interest payment. The main purpose of GPFRs is to assess prospects of entity for investors, creditors and lenders who has requirement of information relate to resources of any specific entity, claims and managing entity in efficient and effective way. The responsibilities will be discharged by governing board for using resources of any entity (Robson, Young, & Power, 2017).
It is a mode of communication for information which is reliable and relevant of reporting business to various users. The main aim of this statement is to justify information which is required for various users of general purpose of financial reports. The requirements are totally dependent on activities related to various reporting entities and decisions which are considered by users. Resources are controlled by various reporting entities and members of that community got influenced by levying prices, giving goods and services, investing resources along with acquiring and rates and taxes (Khan, 2015). The interest of community is served in appropriate manner if reporting entities controls scarce resources and its allocation will be performed in efficient and effective aspect. It will be enhanced if proper identification has been done of groups who takes decisions about allocation of resources. As they will be having proper financial information according to base of their specific decisions. Its main objective is to give this specific information.
It provides mechanism for enabling governing and managing bodies for discharging its accountability. It is accountable to only specific resource providers of entity for controlling and planning operations of particular entity. It helps in distinguishing entity of business and non business whose mutual objective has been defined in this statement which reflect various inherent similarities among these types of entities.
Difference between GPFRs and Special Purpose Financial Statements
In context of business or companies had different requirements of reporting for accomplishing various range of necessities and regulations. The method of presenting financial accounts and reports are represented and its preparation is generally identified on basis of applying Accounting Standards. In the same series it has been amended for accommodating basic necessity for creating ability to producing accounts by applicable common standards in context of world. These accounting standards are classified in two types of financial reports which should be framed by business are General purpose financial reports and special purpose financial reports (Barth, 2015).
Special purpose Financial statement is known as financial report which is directly intended towards presentation of limited users for group. It should be accompanied of full set of financial statements for general use in this statement or it might be represented in separate manner. The requirement of this type of statement is generally by government entities and it has been presented for particular set of operations whose format is pre determined easily. The requirement of information and format of reporting which has been laid for basic reporting framework.
General purpose financial statement is directly complied with framework of AASB and accounting standards. It helps in accomplishing information whose requirement is common to specific users who are not capable for commanding preparation of various reports which are customised for satisfying it specifically as per requirement of information. These reports are framed by various entities as identified according to corporations act and its use of statement of accounting concepts (SAC) 1 and 2. On the context of general guide organizations has huge number of employees, foreign ownership which has perceived many end users who rely for process of decision making on basis of various other application of resources (Special Purpose Financial reports vs General Purpose Financial reports, 2018).
On the contrary side, special purpose financial reports is framed for accomplishing requirements of particular group or for specific purpose must be able to satisfy. The preparation of report are virtually without any specific format as it is according to business requirement or desire. In general terms, it will be made up of balance sheet and Income statement or it might contain different degrees for other needs of reports which is established by member, owners or directors. As it is termed as kind of reports which has been prepared by various other SMEs.
Requirement of producing GPFRs in public companies but not in private companies
By addressing requirements of producing GPFRs in public entities has to produce reports on GPFRs. The requirement is for setting legislation, parent entity or founding documents. While applicable legislation there is need of information for GPFRs as it should be able to comply with GAAP (Jorge, Jorge de Jesus & Nogueira, 2016). It is considered as an overall accounting standards and more guidance has been given to set method which must be used for preparing financial reports. The general purpose financial reports is mostly reliable as compared to other reports due to various need complied with principles of GAAP. It is essential that it should consider various requirements especially independently standard setters for preparation of general purpose financial reports for ensuring that it should be unbiased, consistent and must be transparent to different accounting standards. In the context of public sector, assurance must be provided by Auditor general to its specific users by which public entity's information must be able to comply with materially with specific accounting standards and it must represent the organization's performance in fair aspect for specific duration which has been covered by financial report.
Principal component of Financial reporting
Ascertaining the various importance of the financial disclosure and reporting in the corporate environment is for communicating the adequate information among the users. The disclosure of each statement and transactional activities are needed to be transparent, reliable and consist of validate information which will bring the appropriate information about financial strength of the company. Similarly, considering the financial reporting boards the main approaches of these financial institution is for balancing the capital market, market value as well as economic standard of nation implicating various principles which are being required for funneling accounting professionals in terms with preparing the financial disclosure of statements (Carey, Potter & Tanewski, 2014).
Moreover, the importance of financial disclosure is for communicating the information among the external and internal users of these information which are approached towards bringing them the reliable and accurate information. Considering their influences in the operations there will be fruitful rise in FDI or international investors to the domestic industries in the nation. Moreover, influences of ASIC (Australian Securities and Investments Commission) on which it can be said that there are various principles and regulations which are being enforced for improving the standard of financial disclosure (ASICs Financial Reporting Surveillance Program, 2018).
Thus, the main approach of the Auditors is for applicating the concept of making true and fair reporting which is consist of all the reliable information regarding annual turnover, operating expenses, net profit, equity collection, current assets, current liability as well as appropriate cash flows. All the statements are being prepared by the verified or certifies accounting professionals which will be helpful in bring the reliable trust over the disclosure of such accounts. Therefore, such ascertainment will be adequate as per up-lifting the level of capital structure in an industry. There will be increment in numbers of investors as well as it will be beneficial to the professionals as per acquiring the loans, mortgages and having appropriate tax benefits from the government (Nogueira & Jorge, 2017).
Mainly, investors seek for the return which have been payable by an industry in a required period on the basis of dividends, return of interest, bank loan as well as taxation payments. Thus, such information is needed to be transparent and clearly stated in the financial statements of the firm. It will be helpful in bringing the reliable trust among users of such information. Beside this, government analyzed financial statement for making taxation planning and improvements in the taxation policies. There are various remedies and exceptions are allowed to corporation as per their needs and wants.
International accounting Standards boards with its impact
International Accounting Standards Board is private sector body which approves and develop International Financial Reporting System(IFRS)which are accepted throughout the world. The IASB is formed in 2001 to replace the International Accounting Standards Committee. IASB framework is employed for preparing and presenting the financial statement by applying the standards and dealing with the issues arises from the standards (Hepworth, 2017). The IASB has amended many standards but started having issues with its own standard which is IFRS. The IASB has a team of 16 members which are appointed for three to five years. If there is any technical issues the IASB held all the responsibility like preparing and issuing of IFRS. For exposer of draft as discussion or final issue standard voting is done, each member has one vote and 10 votes must be needed in the favour of the particular draft.
IFRS is required for all the domestic companies in Australia including listed companies and financial institution. The IFRS standards and norms are mandatory to follow in every company comes under the IASB in Australia. All the financial statements are meant to be prepared according to the standards set by the IFRS. IASB is working on a higher frameworks to help the companies in making the accounts statements which really matters to the investors. Even before the IASB move, the Australian companies are much interested in simplifying their accounts. Recently the Australian Accounting Standards Board published a report regarding the adaptation and ongoing IFRS standards on Australian profit and non-profit organizations. Its being more than ten year since Australia has adopted the IFRS standards and the study stated that the quality of the information has been improved in the financial statement of the companies (Ritchi, Fettry & Susanto, 2016).
From the above report it can be concluded that general purpose financial reports are considered as decision which is important for user of capital provider along with non capital providers as well. It has been articulated that these reports plays very important role as it helps in communicating essential information which is very important for insiders and outsiders. It is termed as general purpose because it comprises financial statements which are very basic and applicable by wide group of people along with huge activities. It has reflected its importance for setting financial statements which also specifies performance of organization along with various outsiders. Further it can be summed up by stating that General purpose financial statements are intended for attaining requirements of various users but not in context of position of need of entity for preparing reports which are customised for appropriate need of information.
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