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Ara Notes

The document outlines the elements of financial statements as per AASB and IASB, emphasizing their role in providing useful financial information for decision-making by investors, lenders, and creditors. Key components include the income statement, balance sheet, and cash flow statement, with definitions for assets, liabilities, revenue, income, and expenses. It also highlights what different stakeholders should focus on in financial statements, along with the limitations of the information provided.

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rickliu2007
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3 views2 pages

Ara Notes

The document outlines the elements of financial statements as per AASB and IASB, emphasizing their role in providing useful financial information for decision-making by investors, lenders, and creditors. Key components include the income statement, balance sheet, and cash flow statement, with definitions for assets, liabilities, revenue, income, and expenses. It also highlights what different stakeholders should focus on in financial statements, along with the limitations of the information provided.

Uploaded by

rickliu2007
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

week 3

elements of financial statements


​
AASB IASB

main objective: to provide financial information about the reporting entity that is useful to existing
and potential investors, lenders and other creditors in making decisions relating to providing
resources to the entity

What is good information?

CRUFTV (faithful representation = reliability)

Statement of Financial Performance - income statement


Statement of Financial POSITION - balance sheet
Statement of Cash flows - liquidity

asset - present economic resource controlled by the entity as a result of past events that has
the potential to produce economic benefits

liability - a present obligation of the entity to transfer an economic resource as a result of past
events

revenue - income that arises in the course of ordinary activities of an entity

income - increase in assets or decrease in liabilities, resulting in an increase in equity

expenses - decrease in assets or increase in liabilities, resulting in a decrease in equity

RED FLAGS IN CFS


OCF neg, OCF < sum of INV AND FIN,
optimal is positive OCF, negative INV and negative FIN

accruals - CF that are expected to occur after the reporting period


what to look at in statements

-​ employees

look for revenue, profit. operating and cash, what matters most is profitability and revenue
stability for job security, wage growth and bonuses

what's not shown is future management restructuring plans, job satisfaction and workplace
culture etc

-​ investors

net profit, operating cash flow. as they want dividends and share price growth

what’s not shown is market competition, management quality, growth potential

-​ lenders

assets as collateral, existing debt, operating cash flow. what matters is ability to repay debt

what’s not shown is reliability of management, sudden external economic shocks, timing of cash
inflows and outflows

-​ suppliers

cash, receivables, current liabilities, operating cash flow. what matters most is short term
liquidity

what’s not shown is payment behaviour, relationship quality

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