Chapter 3—Financial statements and the reporting entity

Financial statements | Objective and scope of financial statements | Reporting period | Perspective adopted in financial statements | Going concern assumption | The reporting entity | Consolidated and unconsolidated financial statements

Financial statements

3.1

Chapters 1 and 2 discuss information provided in general purpose financial reports and Chapters 3–8 discuss information provided in general purpose financial statements, which are a particular form of general purpose financial reports. Financial statements[7] provide information about economic resources of the reporting entity, claims against the entity, and changes in those resources and claims, that meet the definitions of the elements of financial statements (see Table 4.1).

7

Throughout the Conceptual Framework, the term ‘financial statements’ refers to general purpose financial statements.

Objective and scope of financial statements

3.2

The objective of financial statements is to provide financial information about the reporting entity’s assets, liabilities, equity, income and expenses[8] that is useful to users of financial statements in assessing the prospects for future net cash inflows to the reporting entity and in assessing management’s stewardship of the entity’s economic resources (see paragraph 1.3).

8

Assets, liabilities, equity, income and expenses are defined in Table 4.1. They are the elements of financial statements.

3.3

That information is provided:

(a)            in the statement of financial position, by recognising assets, liabilities and equity;

(b)            in the statement(s) of financial performance,[9] by recognising income and expenses; and

(c)            in other statements and notes, by presenting and disclosing information about:

(i)             recognised assets, liabilities, equity, income and expenses (see paragraph 5.1), including information about their nature and about the risks arising from those recognised assets and liabilities;

(ii)            assets and liabilities that have not been recognised (see paragraph 5.6), including information about their nature and about the risks arising from them;

(iii)           cash flows;

(iv)           contributions from holders of equity claims and distributions to them; and

(v)            the methods, assumptions and judgements used in estimating the amounts presented or disclosed, and changes in those methods, assumptions and judgements.

9

The Conceptual Framework does not specify whether the statement(s) of financial performance comprise(s) a single statement or two statements.

3.7

Financial statements include information about transactions and other events that have occurred after the end of the reporting period if providing that information is necessary to meet the objective of financial statements (see paragraph 3.2).

3.11

Sometimes one entity (parent) has control over another entity (subsidiary). If a reporting entity comprises both the parent and its subsidiaries, the reporting entity’s financial statements are referred to as ‘consolidated financial statements’ (see paragraphs 3.15–3.16). If a reporting entity is the parent alone, the reporting entity’s financial statements are referred to as ‘unconsolidated financial statements’ (see paragraphs 3.17–3.18).