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There are many objectives to financial reporting. The following are just some of the many:
- Tax minimization - a privately owned business who doesn't necessarily care about the net income computed on their income statement would have the goal to minimize tax. Since their general purpose financial statements are filed with their tax return, they would want to minimize the amount of tax. (Thus their objective is to get their financial statements to show a low income to minimize the tax they pay.)
- Stewardship - Shareholders or stock holders who have invested in the business are not involved in the day to day operations of the business; thus they do not know how the business is doing, so they turn to the financial statement to assess the business standing.
- Management evaluation - Stakeholders often want to evaluate the performance of the people managing the business and does so by looking at the financial statement. Some manager's bonus are reflective of the financial statements as well.
- Performance evaluation - Similar to management evaluation, but in a broad sense, (potential) stakeholders want to evaluate the overall performance of the business to see if they should invest in the business or not.
- Cashflow prediction - Creditors will be interested in knowing if they should lend the business money. It helps them to estimate whether the business will be able to pay back the interest and principal on the loan. Also shareholders will be able to evaluate if the business will be able to pay out dividends.
- Monitoring contract compliance - Some terms and conditions of banks limit the actions that management can take often by financial statement numbers. For example the business may have to maintain a certain current ration, not pay over a certain amount in dividends, or not take out more loans.
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Which of the financial accounting objectives listed below would seem to be closest to the objective of tax reporting?
The financial accounting objective that seems closest to the objective of tax reporting is the objective of providing information to investors and creditors. Both financial accounting and tax reporting aim to accurately report financial information to stakeholders, whether they are investors, creditors, or government agencies. While financial accounting focuses on providing information for decision-making and assessing the financial health of a company, tax reporting is focused on ensuring compliance with tax laws and regulations. Both processes involve reporting financial information in a transparent and accurate manner to different parties.
How does GAAP affect financial reporting?
How does GAAP affect financial reporting?
Do financial reporting and financial statement mean the same thing?
"Do the term financial reporting and financial statement mean the same thing?"
Why is it necessary to develop a definitional framework for the basic elements of accounting?
. According to the FASB conceptual framework, the objective of financial reporting for business enterprises is based on the needs of the users of financial statements. Explain the level of sophistication that the Board assumes about the users of financial statements
Why may regulation of financial reporting be important?
The regulation of financial reporting is important in order to make sure that said financial reporting is accurate and transparent. This, in turn, is important to prevent fraud and malfeasance.
