Objectives of Financial Reporting

Abstract

Conceptual framework documents can be evaluated in terms of four criteria: clarity of expression, consistency of assumptions with knowledge of commercial practices and the behaviour of external users of accounting information, internal consistency, and comprehensiveness as a guide to financial reporting practice. On this basis, the Australian Accounting Research Foundation's (AARF’s) Statements of Accounting Concepts No. 2 (AARF, 1990a),Objectives of General Purpose Financial Reporting, is found wanting. SAC 2 is inappropriately drafted in terms of normative statements, and incorporates considerable ambiguity because of its allusions to inconsistent objectives without guidance as to weightings or how apparently inconsistent statements might be reconciled. Supporting analysis is rudimentary at best and it relies on an inappropriate use of terminology, while statements lack empirical support and are not linked to any analysis of users’ needs for information. Six recommendations for the redrafting of a more narrowly focused SAC 2 (concentrating on annual reports by profit‐seeking entities) are presented.

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