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ACCA Applied Knowledge · Financial Accounting · The context and purpose of financial statements for external reporting

Which statement best describes the main purpose of general purpose financial statements prepared under IFRS?

General purpose financial statements aim to give existing and potential investors, lenders and other creditors information useful for decisions about providing resources to the entity. They are not tax computations, internal management reports or market valuations of net assets.

  1. ATo provide information about the entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resourcesCorrect
  2. BTo calculate the amount of tax payable to the tax authority for the period
  3. CTo give management detailed cost information for planning and control of operations
  4. DTo show the market value of the entity's net assets at the reporting date

Explanation

The Conceptual Framework states that the objective of general purpose financial reporting is to provide information useful to existing and potential investors, lenders and other creditors when deciding whether to provide resources to the entity. Tax computations and internal cost reports serve different purposes. Financial statements are not designed to show market value of net assets.

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