Objective of General-Purpose Financial Reporting
Primary Objective
The primary objective of general-purpose financial reporting is to provide financial information that is useful to existing and potential investors, lenders, and other creditors when making decisions about providing resources to an entity. These decisions include buying or selling investments, granting loans, and assessing management's stewardship.
- Assist investment decisions.
- Evaluate future cash flows.
- Assess management's performance.
- Estimate the company's financial strength and risks.
Tip
When studying accounting standards, always ask whether the rule improves decision usefulness for investors and creditors.
Summary
Financial reporting exists to provide decision-useful information rather than to satisfy management or tax authorities.