Financial Reporting · The need for a conceptual framework and the characteristics of useful information

Objective of General Purpose Financial Reporting and Its Primary Users

Updated 11 October 2026 · Fact-checked

The objective of general purpose financial reporting is to give financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors when they decide whether to provide resources to the entity. These three groups are the primary users. Other users may find the reports useful, but reports are not aimed at them.

Understand Objective of General Purpose Financial Reporting

The IASB's Conceptual Framework for Financial Reporting starts with one question: who are financial statements for, and what do they need? Everything else in the Framework, such as qualitative characteristics, recognition and measurement, follows from the answer.

The answer is the objective of general purpose financial reporting. It is to provide information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity. These decisions include buying, selling or holding shares and debt, and providing or settling loans and other credit.

These three groups are the primary users. They are chosen because they cannot demand information directly from the entity. A bank or a large shareholder may be able to ask for tailored reports. Most investors and creditors cannot, so they rely on general purpose financial reports. Other parties, such as regulators, employees, customers, governments and the public, may also use the reports. But the reports are not primarily directed to them, and the IASB does not design standards around their needs.

What do primary users need? They want to assess the entity's prospects for future net cash inflows. They also want to assess how well management has discharged its responsibilities for the entity's resources, which is stewardship. To do this, they need information about:

the entity's economic resources and claims against it (financial position)
changes in those resources and claims, from financial performance and from other events such as issuing shares or debt

Financial performance is shown on an accrual accounting basis. It is also helped by information about cash flows in the period.

General purpose reports have limits. They cannot give every primary user all the information they want. They do not show the value of the entity, but they help users estimate it. They rely on estimates, judgement and models, and users must also consider other sources, such as general economic conditions and industry outlook.

Key rules to remember

Objective of general purpose financial reporting: Useful information about the reporting entity → for existing and potential investors, lenders and other creditors → to help decisions on providing resources to the entity; Use this wording in written answers. Name all three user groups.
Primary users: Primary users = existing and potential investors + lenders + other creditors; They cannot require the entity to supply information directly, so they depend on general purpose reports.
What users assess: (1) Prospects for future net cash inflows to the entity; (2) management's stewardship of the entity's economic resources; These are the two assessments that the information must support.
Information provided: Economic resources and claims (financial position) + changes in them (financial performance and other events); Performance is reported on an accrual basis and is supported by information on cash flows.

How to solve Objective of General Purpose Financial Reporting questions

Use this method for any question on the objective of financial reporting or the needs of users.

1Read the question and decide what it asks: the objective, who the primary users are, what information they need, or whether a given party is a primary user.
2State the objective in one sentence: useful information about the entity for existing and potential investors, lenders and other creditors, to help decisions about providing resources.
3Identify the user or users in the scenario. Classify each as a primary user (investor, lender, other creditor) or as another user (employees, regulators, customers, government, public).
4Link the user to the decision they make, such as buy, sell or hold shares, or lend or settle a loan.
5Link the decision to the information needed: economic resources, claims, changes in them, and management stewardship, all aimed at assessing future net cash inflows.
6Apply the limits where relevant: reports cannot meet every user's needs, and other users may still find them useful.
7For a written answer, use short paragraphs or bullet points, each tied to the scenario. For an objective test question, eliminate options that name non-primary users or the wrong purpose.

Quickest way: Three-check method for objective test questions

When to use it: Use this in Section A or in an OT case when you have about three minutes per question and the options are close.

Check the user: is the party an existing or potential investor, lender or other creditor? If not, it is not a primary user.
Check the purpose: the objective is to help decisions about providing resources. Reject options that say reports are for tax, regulation or management control.
Check the content: information must help assess future net cash inflows and stewardship. Reject options that say reports show the entity's value or meet every user's needs.

Common mistakes in Objective of General Purpose Financial Reporting

Listing employees, customers, government and the public as primary users.
Older textbooks and general business courses list many stakeholders, so students carry that list across.
Fix: Remember there are only three primary users: investors, lenders and other creditors. Others may use the reports but are not the target.
Saying the objective is to show the value of the entity.
Students link financial statements with worth, because the statement of financial position shows assets.
Fix: Say the reports help users estimate value. They do not show it. The objective is useful information for resource decisions.
Naming only investors and forgetting lenders and other creditors.
Shareholders are the most familiar users.
Fix: Always write the full phrase: existing and potential investors, lenders and other creditors.
Ignoring stewardship.
Students focus only on predicting cash flows.
Fix: Include both assessments: prospects for future net cash inflows and management's stewardship of resources.
Claiming general purpose reports meet the needs of every user.
The word 'general' suggests the reports serve all users equally.
Fix: State that they cannot provide all information users need. Users must also consider other sources of information.
Giving a list of user groups and their needs with no link to the scenario.
Students memorise a list and write it out in full.
Fix: Pick the users in the scenario, name their decision and match it to the information. Keep each point short and specific.

Worked examples

Example 1

Which of the following is a primary user of general purpose financial reports according to the Conceptual Framework? (A) The tax authority (B) An existing lender to the entity (C) The entity's employees (D) A trade customer

Show the solution

Recall the primary users: existing and potential investors, lenders and other creditors.
Test (A): a tax authority is a regulator or government body, not a primary user.
Test (B): an existing lender provides resources to the entity, so it is a primary user.
Test (C): employees may use the reports, but they are not primary users.
Test (D): a customer may use the reports, but is not a primary user.

Answer: (B) An existing lender to the entity.

Example 2

Zeta plc is preparing its annual report. A director says: 'Our report should be written mainly for our employees and the local community, because they are affected most by us.' Explain whether this is consistent with the objective of general purpose financial reporting, and state the information primary users need.

Show the solution

State the objective: useful information about Zeta for existing and potential investors, lenders and other creditors, to help decisions on providing resources.
Apply it: employees and the local community may find the report useful, but they are not primary users. The report is therefore not mainly directed at them.
Explain why the three groups are primary: they cannot demand tailored information directly from Zeta, so they rely on the general purpose report.
State the decisions of primary users: buying, selling or holding shares and debt, and providing or settling loans and other credit.
State the information they need: Zeta's economic resources and claims, and changes in them.
State the assessments the information supports: prospects for future net cash inflows to Zeta, and management's stewardship of its resources.
Add the limit: the report cannot meet every user's needs, so other users must look to other sources where necessary.

Answer: The director's view is not consistent with the Conceptual Framework. The report is aimed at existing and potential investors, lenders and other creditors. Employees and the community may still use it. Primary users need information on Zeta's economic resources, claims and changes in them, to assess future net cash inflows and management's stewardship.

Exam tips

Write the objective with all three user groups and the purpose, which is decisions about providing resources. Examiners look for these exact elements.
In scenario questions, name the user in the scenario and say which decision they make before you list information needs.
If an option says reports are for all stakeholders, show the entity's value or meet every need, treat it as likely wrong.
Mention both future net cash inflows and stewardship in any question that asks what users assess.
Keep written answers short and structured. One clear point per bullet, tied to the scenario, earns more than a memorised list.

Practice questions from The need for a conceptual framework and the characteristics of useful information

Objective of General Purpose Financial Reporting in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Objective of General Purpose Financial Reporting: frequently asked questions

Who are the primary users of financial statements under the IASB Conceptual Framework?

They are existing and potential investors, lenders and other creditors. They are primary because they cannot require the entity to give them information directly. They therefore depend on general purpose financial reports.

Are employees, customers and governments users of financial statements?

They may use the reports and find them useful. But the reports are not primarily directed to them and standards are not designed around their needs. In FR, do not call them primary users.

What information do primary users need from financial reports?

They need information about the entity's economic resources and claims, and about changes in them. This helps them assess prospects for future net cash inflows and management's stewardship of resources.

Do general purpose financial reports show the value of the reporting entity?

No. They do not show the value of the entity. They provide information that helps primary users estimate it. The reports also cannot meet every user's needs, so users consider other sources too.