Question 1:
a) List out the financial statements that reporting enterprises present in their annual
reports. What information can be derived from these statements?
b) What are the objectives of financial statements?
c) Who are the users of financial information? What decisions do these users make and
what information do they need?
d) What are the principle qualitative characteristics of financial information? Explain
these characteristics. Are there other qualitative characteristics? If there are, list and
explain them.
e) List and define the elements of financial statements.
Answers for given questions:
Question 1 (a)
List out the financial statements that reporting enterprises present in their annual reports.
What information can be derived from these statements?
Financial statements (or financial reports) are formal records of a business financial
activities. These statements provide an overview of a business profitability and financial
condition in both short and long term. The reports contain financial information about an
organization. Financial statements also provide information of value to company officials
as well as to various outsiders, such as investors and lenders of funds. Financial statements
include notes, which are considered an integral part of the statements. The notes contain
required disclosures of additional data, assumptions and methodologies employed, and
other information deemed useful to users. The financial statements of publicly owned
companies also include an auditors report, indicating that the statements have been audited
by independent auditors. The auditors opinion is related to fair presentation in conformity
with GAAP.
There are four basic financial statements:
1. Balance Sheet
It is referred to as statement of financial condition, reports on a companys assets, liabilities
and net equity as of a given point in time. The assets are the firms resources, financial or
no financial, such as cash, receivables, inventories, properties, and equipment. The total
assets equal the sources of funding for those resources: liabilities (external borrowings)
and equity (owners contributions and earnings from firm operations).
The balance sheet is used by investors, creditors, and other decision makers to assess the
overall composition of resources, the constriction of external obligations, and the firms
flexibility and ability to change to meet new requirements.
Example of Balance Sheet format:
2. Income Statement
It is referred to as Profit or loss statement, the earnings statement, or the operations
statement. It presents the details of the earnings achieved for the period. The income
statement separately itemizes revenues and expenses, which result from the companys
ongoing major or central operations, and the gains and losses arising from incidental or
peripheral transactions.
Certain irregular items (such as discontinued operations, extraordinary items, effects of
