Stockholders, suppliers, banks, employees, government agencies, business owners, and other stakeholders are examples of people interested in receiving such information for decision making purposes.
It includes the standards, conventions and rules that accountants follow in recording and summarizing and in the preparation of financial statements.
[2] With IFRS becoming more widespread on the international scene, consistency in financial reporting has become more prevalent between global organizations.
According to the European Accounting Association: Capital maintenance is a competing objective of financial reporting.
When producing financial statements, the following must comply: Fundamental Qualitative Characteristics: Enhancing Qualitative Characteristics: The statement of cash flows considers the inputs and outputs in concrete cash within a stated period.
The net profit or loss is determined by: Sales (revenue) – cost of goods sold – selling, general, administrative expenses (SGA) – depreciation/ amortization = earnings before interest and taxes (EBIT) – interest and tax expenses = profit/loss The balance sheet is the financial statement showing a firm's assets, liabilities and equity (capital) at a set point in time, usually the end of the fiscal year reported on the accompanying income statement.
Accounting standards often set out a general format that companies are expected to follow when presenting their balance sheets.
It shows how the distribution of income and transfer of dividends affects the wealth of shareholders in the company.
The concept of retained earnings means profits of previous years that are accumulated till current period.
This principle also assumes the unit of measure is stable; that is, changes in its general purchasing power are not considered sufficiently important to require adjustments to the basic financial statements.
"[10]Historical Cost Accounting, i.e., financial capital maintenance in nominal monetary units, is based on the stable measuring unit assumption under which accountants simply assume that money, the monetary unit of measure, is perfectly stable in real value for the purpose of measuring (1) monetary items not inflation-indexed daily in terms of the Daily CPI and (2) constant real value non-monetary items not updated daily in terms of the Daily CPI during low and high inflation and deflation.
IFRS requires entities to implement capital maintenance in units of constant purchasing power in terms of IAS 29 Financial Reporting in Hyperinflationary Economies.