The report has been undertaken to provide an insight into the purpose or objective behind the need for creating and disclosing a general purpose financial report (GPFR). The reports consist of the various types of financial statements that are developed by an entity such as cash flow position, statement of income and equity and the balance sheet position. These statements provides an illustration of the use of resources, cash flow analysis and the assets and liabilities position of an entity for making informed decisions. The information is required by the users for making various types of financial decisions by meeting their different needs and requirements.
In this context, this report provides a description and discussion in detail about the need for business entities to develop a general purpose financial report (GPFR). The objectives of these reports that are included in the conceptual framework project are also been analyzed in the report. This is followed by examining the general reports developed by the selected business entity listed on ASX of Nufarm that is a recognized agricultural chemical company of Australia providing its products to about 100 countries worldwide. The assessment of the financial report as per the GPFR and its various objectives achieved by the selected company are also discussed in detail within the report.
The general purpose financial reports are the reports that are developed by the reporting entities for giving the information that is required by many users for taking different individual decisions. These reports are established for the users who cannot access the special information owing to their authoritative position such as tax authorities or some specific government agencies. The general reports mainly give information about the financial position, performance and cash flows of an entity. The users of such reports are able to take relevant economic decisions by examining the ability of an entity go generating cash (History of the Conceptual Framework, 2013). As such, they can evaluate the strengths and weaknesses of an entity and also evaluating its future growth prospects.
As such, the major aim of the financial reporting can be stated as follows:
Giving relevant information to the Users: The reports mainly intend to serve the varying information needs of the users such as creditors, suppliers, investors, shareholders and others. The major need of the users is efficient use of capital and making optimum allocation of resources.
Tracking the Cash Flow: The general reports of a business also intend to give an insight into the type of cash inflows and outflows and thus examining the performance of a business in relation to its future growth.
Analysis of the assets, liabilities and the equity of owners: The different types of financial statements under a GPFR are useful to examine the assets, liabilities and equity position of an entity and thus assessing the resources availability for future growth to the primary users (IPSAS, 2018).
The general purpose financial reports mainly gives information about financial position, performance and cash flows of an entity. The information obtained by these reports can either by financial or non-financial that supports the financial statements such as notes section that are included within the GPFR’s. The primary users of financial reports are the recipients of services, providers of resources, legislature or similar body as stated within the objective of GPFR’s. These reports responds to the information needs of these users who generally do not have any authority for receiving specific information on their command and therefore are provided with common information by means of developing the general purpose financial statements (Mills, 2017).
The general citizens who receive products or services from the private or public sector entities are the main users for which information is presented within the general financial reports of a business entity. The lenders and corporations who are not citizens but are providing resources are also the main users of the general information provided within the financial statements of an entity. The governments providing resources to an organization also requires information for accountability and decision-making purposes (Previts and Bricker, 2011).
Besides these users, there are also certain users who possess authority for requiring special information from the financial reports for addressing their specific needs and thus does not relies on information of the GPFR’s. These users includes regulatory bodies, audit companies, members of the legislature or governing bodies, rating agencies and lending institutions and are not included within the primary users of the general purpose financial reports. These reports are developed by application of the AASB’s and follow a specific format that needs to be adopted by all the business entities involved in their preparation and disclosure. The specific rules and guidelines of the Corporations Act 2001 and the Statement of Accounting Concepts (SAC) also need to be followed in developing a general report (Girella, 2018).
Thus, from the overall discussion the major objectives of a general purpose financial report can be stated as follows:
The objective of financial reports by the public or private sector entities is to give accountable information that is required by the different types of primary users for making relevant decisions. The accountability purpose of information given in these reports will contribute to the informed and better economic decisions. The information includes mainly about costs, efficiency, and resources availability for supporting future activities and is also necessary for discharge of accountability (Staubus, 2013).
The financial reporting requirement is determined in reference to the users and their specific information needs. For example, the information about a financial position of an entity will assist the end-users for assessing and claiming its resources. The financial performance information will enable the users to give the information in relation to assessment of matters whether an entity has acquired resources in an economical way and use them in an efficient manner for achieving the stated goals and objectives. The cash flow information is required for examining the liquidity and solvency position of a firm and indicating the ways in which an entity used cash during a specific accounting period such as evaluation of borrowings and the method of repayments (Berger, 2018).
The disclosure of the information stated within the financial statements of an entity is regarded as the major purpose of a general financial report prepared by an entity. The framework of accounting has stated the necessary qualitative characteristics that the financial information should have for meeting the purpose of developing GPFR’s. The framework has identified two fundamental characteristics that is relevance and faithful representation and four enhancing qualitative criteria’s of being understandable, verifiable, timely and comparable to be present in information given by the GPFRs(History of the Conceptual Framework, 2013).
The financial report of the selected corporation Nufarm is a GPFR as the reports have been prepared in accordance with the AASB’s and the Corporations Act 2001. The consolidated financial statements are regarded to be general purpose as they effectively comply with the IFRS adopted by the IASB. The explanation of CF criteria’s and their significance for meeting the objective of general purpose financial report (GPFR) by examining the annual report of the selected company of Nufarm is stated as follows:
Fundamental Qualitative Characteristics
The two fundamental qualitative characteristics of the financial information that has been stated by the Conceptual framework (CF) of accounting are relevance and faithful presentation of information.
The financial and non-financial information presented within a GPFR’s is regarded to be relevant if it is capable of making a difference in the decision-making process of the end-users. This infers that it needs to have a prediction and confirmatory value so that the information is useful for taking decisions. The confirmatory value signifies that it should confirm to the past or present valuations whereas for predictive value it needs to confirm about the future expectations and thus needs to give information about its potential growth prospects (Christian and Lüdenbach, 2013). Both these values are inter-related with each other, for example, the information about the current resources or claims confirms the effectiveness of resource utilization for a present financial period whereas it also helps in predicting the ability of a company for responding to meet the future needs. The financial report of Nufarm as per this qualitative principle of CF has presented the information about the ass liabilities position within the financial statement of the balance sheet (Nufarm: Annual Report, 2019).
This objective of the CF can be attained by the firms when the information provided is complete, neutral and does not have any type of error. This is required as the omission or misinterpretation of certain information can result in give false or misleading facts to the users that can result in their inaccurate decision-making (Bazley and Robinson, 2014). The neutrality pertains to absence of any type of biasness and thus discharge of accountability and also it is required to provide the degree of uncertainty within the financial and non-financial information (Nufarm: Annual Report, 2019). The financial report of Nufarm has depicted faithful information as assured by the auditor’s declaration as presented below:
Thus, it can be said that both these qualitative principles that are relevancy and faithful representation are required to address the objectives of the GPFR’s. The compliance with relevance ensures that the information possess capability to support the decisions taken by the users whereas faithfulness ensures that it is credible and trustworthy to be used for any purpose by the users.
Enhancing Qualitative Characteristics
This quality of financial information provided by the CF intends to respond to the needs and knowledge of the users by ensuring that the financial reports are presented in an easy format. As such, the financial report of Nufarm has provided explanations of financial and non-financial information in the notes section during the period of reporting. This understandability of the formation given is enhanced by presenting it in a classified, characteristics and clear format(Nufarm: Annual Report, 2019). This can be illustrated from the financial report of Nufarm as follows:
This financial information quality assists the users for identifying the similarities and differenced across the different period of the accounting information. In this context, the business organizations need to adopt the use of consistent accounting principles or policies to be followed for developing the financial reports. As such, it is indicated from the GPFR’s of the selected company of Nufarm that it adopts the accounting policies and standards complying with the AASB for creation of its financial reports for achieving consistency (Berger, 2018). The financial statements also presents the information in a comparable manner by reporting the financial figures across the two reporting periods as depicted below:
The information should provide assistance to the users that the information depicted can be verified either through direct or indirect means (Bazley and Robinson, 2014). The financial report of Nufarm has ensured that the information can be verified directly through observation by stating it in numerical form whereas indirect observation ensures that the information can be indirectly verified by stating the accounting policies or methods that has been used for presentation of such information. For example, the carrying amount of inventory can be directly verified by checking the costs and quantities and indirectly through the application of average cost formula stated within the notes to financial statement section (Nufarm: Annual Report, 2019).
The timeliness information of CF has stated that it should be depicted in a timely manner so that the users receive updated information. The annual report of Nufarm published on an annual basis so that the primary users are able to achieve updated information that can support their decision-making.
Thus, it can be said from examining the enhancing qualitative features of the conceptual framework of reporting that they are required to be present within the financial information disclosed for meeting the objective criteria’s of GPFR’s. This is because they enrich the usefulness and accountability of such reports before the users (History of the Conceptual Framework, 2013).
The discussion infers that GPFR’s are the primary reports provided by the entities to the general users for supporting them to take different economic or investment decisions. The qualitative features of the CR project are essential to be adopted by the entities in developing their financial reports for meeting the objective of their preparation and disclosure to the end-users.
Bazley, M. and Robinson, P. 2014. Contemporary Accounting PDF. US: Cengage Learning Australia.
Berger, M. 2018. IPSAS Explained: A Summary of International Public Sector Accounting Standards. US: John Wiley & Sons.
Christian, D. and Lüdenbach, N. 2013. IFRS Essentials. US: John Wiley & Sons.
Girella, L. 2018. The Boundaries in Financial and Non-Financial Reporting: A Comparative Analysis of their Constitutive Role. UK: Routledge.
History of the Conceptual Framework. 2013. [Online]. Available at: https://www.pempal.org/sites/pempal/files/event/attachments/cross_day-2_2_ipsasb-conceptual-framework_eng.pdf [Accessed on: 27 May 2020].
IPSAS. 2018. Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities. [Online]. Available at: https://www.nku.cz/assets/o-nas/konference-seminare/2018/seminar-audit-mezinarodnich-organizaci/zelenka-ka.pdf [Accessed on: 27 May 2020].
Mills, A. 2017. Company Accounting - Prepare Financial Reports for Corporate Entities. US: Cengage AU.
Nufarm: Annual Report. 2019. [Online]. Available at: https://cdn.nufarm.com/wp-content/uploads/2019/11/01072841/Final-Web-Version-Annual-Report.pdf [Accessed on: 27 May 2020].
Previts, G. and Bricker, R. 2011. Global History of Accounting, Financial Reporting and Public Policy. US: Emerald Group Publishing.
Staubus, G. 2013. The Decision Usefulness Theory of Accounting: A Limited History. UK: Routledge.
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