Accounting theory

Essay by windskierUniversity, Master'sA+, August 2004

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Part (a)

Identify and discuss the relevant users of financial reports using two different definitions of who a user of a financial report is. You should find at least two academic journal articles to support your arguments. Secondly, compare your findings with the definition provided in Statement of Accounting Concepts 2 'Objective of General-purpose Financial Reporting'.

▪ The Purpose of General Purpose Financial Reports

Before identifying who a user of a financial report is, we need to have a comprehensive understanding of the purpose of GPFRs. As stated in Statement of Accounting Concepts (SAC) 2, the purpose of GPFRs is that an entity, "...should provide information useful to users for making and evaluating decision about allocation of scare resources" (SAC 2, paragraph 43), also, "management and governing bodies should present GPFRs in a manner whish assists in discharging their accountability (SAC 2, paragraph 44).

▪ Who are The Users of Financial Report

Based on the objectives of financial reporting, the definition of the user of a financial report can be identified.

However, the perspectives may vary slightly from different countries. In order to pursue the economic globalization trend, more and more countries adopt International Accounting Standards (IAS) to meet the new needs of GPFRs' users, especially for the users who resident in other nations for cross-border trading and investment (Howieson, B, 1997). The following section will take different perspectives from US and UK as examples to identify who a user of a financial report is and their specific needs on GPFRs.

In United States, Statement of Financial Accounting Concept No.1 (SFAC 1) "Objectives of financial reporting by business enterprises" defines the users of accounting information as "...present and potential investors and creditors and other users with reasonable understanding of economic and business situations" ( Gavin, TA, 2003). The investors,