What Are Objectives of Financial Reporting?

Financial reporting goals refer to the goals or objectives of providing financial information or preparing financial reports (financial statements). It is the highest level in the financial accounting conceptual framework and plays a guiding role in the development of accounting.

Financial reporting goals

Right!

Financial reporting objectives are to provide

The goal of financial reporting is to provide users of financial reports (including investors, creditors, governments and relevant departments, and the public) with accounting information related to the financial status, operating results, and cash flow of the company, reflecting the fiduciary responsibility of the company's management. Fulfilment helps financial reporting users make economic decisions. ^[1]

Financial accounting, as an external reporting accountant, aims to provide useful information to external accounting information users to reflect

On February 15, 2006, the Ministry of Finance of China issued a revised new Accounting Standard for Business Enterprises. The promulgation of the new standards means that China's accounting standards are undergoing another major change. Among them, the "Enterprise Accounting Standards-Basic Standards" for the first time clearly stated the goals of China's financial reporting, stipulating that the government and other market entities have become "equal information users". This reform is the basis of China's accounting theory based on the modern economic environment. Make timely adjustments. ^[1]

I. New and old standards on financial reporting objectives

Article 2 of Chapter 2 of the old basic standards stipulated that accounting information should meet the requirements of national macroeconomic management, meet the needs of relevant parties to understand the financial status and operating results of the enterprise, and meet the needs of internal management of the enterprise. Article 4 of Chapter 1 of the new basic standards stipulates that the objective of financial accounting reports is to provide users of financial accounting reports with accounting information related to the financial status, operating results and cash flows of the enterprise, and to reflect the performance of the company's management entrusted responsibilities It helps users of financial accounting reports to make economic decisions. Users of financial accounting reports include investors, creditors, governments and their related departments, and the public.

Reconsideration of the current financial reporting objectives

The provisions of the old basic standards on accounting objectives mainly emphasized on meeting the needs of national macroeconomic management. The requirements of the new accounting standards for the objectives of financial reporting can be summarized into two main points: First, the financial report mainly provides accounting information related to the financial status, operating results and cash flow of the company; second, the purpose of this information is : Reflect the performance of the company's management responsibility; help users make economic decisions.

Speaking of which, I have to introduce two representative views in the definition of accounting goals: "the view of fiduciary responsibility" and "the view of usefulness of decision-making."

The concept of "trusted responsibility" was formed during the prevailing period of the corporate system, and its development was closely related to the development of the corporate system and modern property rights theory. According to the theory of property rights, the property owner entrusts the property to the trustee, and requires the trustee to properly keep the property and add value; the trustee accepts the trustee's entrustment, and at the same time obtains the property's autonomy and disposal rights, and There is an obligation to report the performance of the fiduciary duty to the client, so that the fiduciary duty based on property ownership is established. The main point of the "Trusted Responsibility View" is that the goal of accounting is to effectively reflect the fiduciary duties of resource trustees and their performance in an appropriate way. It regards accounting personnel as an intermediary role between the client and the trustee, and it emphasizes the effectiveness of the accounting standards and the overall accounting system on which financial statements are based. The provision of accounting information is based on the past and focuses on operating performance.

The emergence of "useful ideas for decision-making" depends on the development of the capital market. In the capital market, the shareholding of stock companies is more widely dispersed, and the ownership relationship is weakened. The owner and the operator do not directly communicate and exchange, which makes the principal-agent relationship blurred, and extremely dispersed investors cannot exercise the general sense. Management, as market investors, they are not concerned about the capital preservation and appreciation of the enterprise, but more concerned about the stock market, that is, the average risk and return level of the capital market and the possible risks and returns of the enterprise. If the performance of the operator is not satisfactory, the owner does not directly replace the operator but sells the shares it owns directly through the capital market and purchases the equity that it considers beneficial, so that the resource trustee will manage the center effectively. The management of entrusted resources turned to maximize the establishment of a good image in the capital market. The main point of the "useful view of decision" is that the accounting goal is to provide information users with quantitative information that is helpful for economic decision-making. The information it is most concerned about is the amount, time distribution and uncertainty of future cash flows. It emphasizes the relationship between accountants and information users, but emphasizes the relationship between information users and the company's economic activities. It emphasizes the usefulness of the financial statements themselves, not the accounting standards and The usefulness of the accounting system as a whole.

In the Western conceptual framework, these two views are often controversial. The International Accounting Standards Committee (ISAC) believes that the objectives of financial statements should be met at the same time: to provide information useful for decision-making; to reflect the performance of management's fiduciary duties. The American Financial Accounting Standards Board (FASB) is a proponent of "useful ideas for decision-making." In the US FASB's provisions on the goals of corporate financial reporting, in general, the goals of financial statements only provide users with economic decisions. But at the same time, the evaluation of the performance of the management authority's entrusted responsibility is also included in the content of economic decision-making.

The provisions of China's basic standards for financial reporting refer to the framework of ISAC's preparation of financial statements, but they are not completely copied. Instead, the accounting information provided by the financial report related to the financial status, operating results and cash flow of the company is set to two. Use, and put the trust responsibility of the management of the enterprise first, and emphasize the reliability of accounting information, which is different from the international emphasis on the relevance of accounting information.

Considering China's current economic environment, at this stage in China, it is more appropriate to position the accounting goal to report the performance of fiduciary duties to the client. China's current economic environment is in a transitional period, and the capital market has been initially established, but various mechanisms are not yet complete, the capital market is weak, and the state-owned shares have the largest share, and the proportion of tradable shares is low. Moreover, after China's implementation of the reform of the property rights system, the fiduciary relationship will be formed mainly through direct contact between the state-authorized institution and the business operator. The client and the fiduciary responsibility of the resource are clear and can be clearly identified. All these make China's accounting goals special: the accounting goals should emphasize the reliability and usefulness of accounting information, reflect the performance of corporate management's fiduciary duties, and meet the needs of investors, creditors and other users for accounting information.

The accounting ideology of the concept of fiduciary responsibility has been substantively reflected in the formulation of specific standards for relevant corporate accounting standards. For example, "Accounting Standards for Business Enterprises No. 12-Debt Restructuring" stipulates that the debt restructuring gains can be included in the current profit and loss, which is the embodiment of the concept of fiduciary responsibility. After all, the debt restructuring gain is a concession made by the creditor rather than the owner. In the past, it was directly included in the capital reserve without going through the profit and loss statement. It was a mix of the economic behavior of the accounting entity (trustee) and the owner (trustor). Now it is directly counted in profit and loss, which clarifies the liability relationship between the two.

The reform of financial reporting goals in the new period has become a reality, which will inevitably bring about an objective demand for corresponding changes in accounting theory and practice framework. It is true that the reform of the current accounting theory and practice framework is a very complicated and extremely difficult system project, which will not be accomplished overnight. However, it is an irreversible trend to rebuild the current accounting theory and practice framework and to reform the general principles of accounting. To seek a new framework and establish new principles, we should actively explore.