Introduction of Financials Statement of Reporting Entity

As we have discussed in chapter 1 and 2 about the information which is provided for the general purpose of the financial reports, and in chapters 3-8, we will discuss the information which is provided for the general purpose of financial statements, which are in a particular form of the general purpose of financial reports.

Financial statements also provided information about the reporting entity’s economic resources, various claims against the entity, and changes made in those resources. They made claims that are meeting the definitions of the elements of the financial statements.

Let’s see some of the objectives and several scopes of financial statements-

The financial statements objective is to lay out financial details about the assets, equity, income, liabilities and expenses of reporting entity, which is considered to be helpful for those users of financial statements who are assessing the prospects for future net cash inflows to the reporting entity and also assessment of the stewardship of the management of the entity’s economic resources.

The provided information is below:

1. In the balance sheet, the information recognizes assets, equity and liabilities.
2. In the statement of profit and loss, the information is provided as recognizing expenses and income.
3. In other statements and notes, the information is provided by presentation and disclosure of information about:

• Equity, income and expenses, assets and liabilities recognized include information about their nature and information about the risks arising from those recognized assets and liabilities.
• Unrecognized assets and liabilities include information about their nature and information about the risks which arise from them.
• Various cash flows.
• Contributions of various claims and distribution by the holders of equity.
• The methods, various assumptions and judgments are used to estimate the amounts presented or disclosed, and several changes are made in those methods, judgments, and assumptions.

Reporting period.

Financial statements have been prepared for a specified period which is known as reporting period, and it helps in providing information’s about:

1. Even during the reporting period- Unrecognised assets and liabilities are included under the assets and liabilities, and equity exists at the end of the reporting period.
2. Income from various sources and various expenses for the reporting period.

For helping users of financial statements to identify and assess trends and changes, financial statements also consist of comparative information for at least one preceding reporting period.

Below mentioned points consist of the information about all possible future transactions and other possible future events:

1. It can be related to the assets or liabilities of the entity which includes the unrecognized assets or liabilities or even the equity that is existing at the end of the reporting period, or during the reporting period, or to various factors like income or expenses for the reporting period.
2. It is considered useful for the users of financial statements.

E.g., by estimating future cash flows, if an asset or liability is measured, then the information about those estimated future cash flows might also help users of financial statements understand the measured reported. Typically, financial statements do not provide other types of information looking forward, for example, material that explains the management’s expectations and various strategies for the reporting entity.

Financial statements also include details about those transactions and other events that have occurred after the end of the reporting period if they provide that information is considered necessary for meeting several objectives of financial statements.

Perspective which have been adopted in Financials Statement of Reporting Entity.

Financial statements helps in providing informations about those transactions and other events which have been viewed from the standpoint of the reporting entity as a whole, not from the perspective of any other particular group of the entity’s who are existing or other potential investors, lenders or several other creditors.

Assumptions of going concern.

Normally, financial statements can be prepared on various assumptions that the reporting entity be concerned and it will later continue the operations for the foreseeable future. Hence, it has been assumed that the entity has neither the intention nor the need to enter the liquidation or cease the trading. If such an intention or need exists, then the financial statements might have to be prepared on several different bases. If so, then the financial statements describes the use of the basis.

The reporting entity for Financials Statement of Reporting Entity

A reporting entity is an entity that requires for chooses and preparing the financial statements. It can be also possible that a reporting entity can be a single entity or even a part of an entity. It can be also comprised as more than one entity. It is not necessary that a reporting entity have to be legal.

Sometimes only one entity (parent) is having control over another entity (subsidiary). If a reporting entity comprises the parent and its subsidiaries, then the reporting entity’s financial statements can be referred to as financial statements that have been consolidated. If a reporting entity is the alone parent, then the reporting entity’s financial statement is referred to as financial statements that are unconsolidated.

If a reporting entity comprises two or more entities then that are not all linked by a relationship of parent-subsidiary, the financial statement of reporting entity is referred to as ‘combined financial statements.

Below mentioned points are the determination of the boundary which is appropriate for a reporting entity and it can be difficult if the reporting entity is:

1. Is an illegal entity.

2. It does not comprise. Only if legal entities are linked in a relationship of parent-subsidiary.

In such cases, the boundary of the reporting entity can be determined, and it can also be driven by the information needed for the primary users of the reporting entity’s financial statement. Those users always needed relevant information that is faithfully represented what it is purports for representing.

Requirements of Faithful representation:

1. Arbitrary or incomplete set of economic activities are not consisted in the boundary of the reporting entities.
2. If included than within the boundaries of the set of economic activities of the reporting entity can result in neutral information.
3. For reference, a description is also provided that how there can be determination of the boundary of the reporting entity and how it is constituted.

Financial statements which are consolidated and unconsolidated for Financials Statement of Reporting Entity.

As a single reporting entity, financial statements consolidated can provide various information about the income, expenses, equity, assets, and liabilities of both the parent and its subsidiaries. That information stands very useful for existing and potential creditors, lenders, and other parent investors in their assessment for the forecasts of future net cash inflows to the parent. This occurs because net cash inflows to the parent include the distributions from its subsidiaries to the parent. Those distributions can usually depend on the subsidiaries of net cash inflows.

Financial statements that are consolidated are not designed to provide separate information about the liabilities, assets, income, expenses, and equity of any particular subsidiary. Own financial statements of a subsidiary are designed for providing that information.

Financial statements unconsolidated are designed to provide information not about those of its subsidiaries but the parent’s assets, liabilities, equity, income, and expenses.

That information can be useful for potential and existing lenders, creditors and several other investors of the parent because:

1. Typically, a claim against the parent does not give the holder a claim against subsidiaries.

2. In some influences, the amounts that can be distributed legally between the holders of equity can claim against the parent which depends on the distributable reserves of the parent.

Another way for providing information about some or all equity, income, expenses, assets and liabilities of the parent alone can be the consolidated financial statements.

Typically, information provided in unconsolidated financial statements is insufficient for meeting the information needed for potential and existing lenders, investors, and other creditors of the parent. Accordingly, when there is a requirement of consolidated financial statements, unconsolidated financial statements cannot be served in the form of substitute for consolidated financial statements. Nevertheless, in addition to consolidated financial statement, a parent may be required to choose and prepare unconsolidated Financials Statement of Reporting Entity.