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IAI Actuarial Core Principles · Business Finance · Interpreting company accounting information

Which statement best describes the main purpose of general purpose financial statements prepared by a company?

The main purpose of general purpose financial statements is to give information on financial position, performance and changes in position that is useful to a wide range of users for economic decisions, rather than computing tax, valuing equity or forecasting cash flows.

  1. ATo compute the taxable income of the company for the assessing authority
  2. BTo provide information about financial position, performance and changes in position that is useful to a wide range of users in making economic decisionsCorrect
  3. CTo show the market value of the company's equity to potential investors
  4. DTo forecast the cash flows the company will generate over the next five years
  5. To record every transaction entered into by the company during the year

Explanation

General purpose financial statements are prepared to meet the common information needs of many users, covering position, performance and changes in position. Tax computations are a separate exercise, and the statements record historical results and do not forecast or give market values.

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