The Purpose of Financial Reporting

One of the central objectives of financial reporting is to provide information that is useful to both present, and potential, creditors, investors, and other users for decision-making purposes. In order to do this, the company must determine if the items in question represents a present obligation or one to be recognized it the future. It is best to document the transactions during the time it is incurred.

By recognizing the liability in this manner, investors and creditors are aware of its assets and expenses as soon as it starts to impact the firm. Since the information distributed in this way is relatively current, it can help user to predict future events such as cash flows, or lack thereof. These revisions can also help to expediently confirm past decisions, giving the user confidence that no current changes are needed. If any estimates (length of useful life, gain or loss on disposal asset, etc) are subject to change based on more accurate information over the useful life of the assets, these changes should be reflected in the financial statement for users to see. Thus, users are always aware of any significant changes made by management. Also when attempting to

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