Group 4

Ni Luh Dina Rahayu (1506305033)

Putu Claudia Tamara Putri (1506305106)
ARL Jonathan Paulalengan (1506305120)

FASB Concepts Statement No. 1

Objectives of Financial Reporting by Business Enterprises

The Financial Accounting Standards Board (FASB) has developed a conceptual

framework for financial accounting and reporting. FASB has issued statements of Financial
Accounting Concepts (SFAC) which establish objectives and fundamentals that will be the basis
for developing financial accounting and reporting standards.
Statement of SFAC No. 1 discuss about the objectives of financial reporting. The
objectives in this statement are those of general purpose external financial reporting by business
enterprises, Although the financial statements have internal and external aspects. Users of such
information should use the information provided by management as a means of communicating
between external users and the enterprise. The external aspect to which financial information is
directed is the investor and the creditor, which are the parties that most concerned about the
company's activities. .Investors and creditors are used broadly and include not only those who
have or contemplate having a claim to enterprise resources but also those who advise or represent
them. And management knows more about the enterprise and its affairs than investors, creditors,
or other outsiders and accordingly can often increase the usefulness of financial information by
identifying certain events and circumstances and explaining their financial effects on the
enterprise.
Financial reporting should provide information that is useful to present and potential
investors and creditors and other users in making rational investment, credit, and similar decisions.
For prospective investors would want to know the ability of the company in obtaining profit,
return on investment, and prospects of the company. For creditors before making a decision to
give or not credit to a company of course also need to consider about the ability of the company to
return the credit if it has matured
The objectives of financial reporting are affected not only by economic, legal, political,
and social environment in which financial reporting takes place, but also by the characteristics and
limitations of the kind of information that financial reporting can provide. The information
provided by financial reporting is primarily financial in natureit is generally quantified and
expressed in units of money. Other information can be disclosed in financial statements (including
notes) or by other means, but financial statements involve adding, subtracting, multiplying, and
dividing numbers depicting economic things and events and require a common denominator.
The primary focus of financial reporting is information about earnings and its components.
Information about enterprise earnings based on accrual accounting generally provides a better
indication of an enterprises present and continuing ability to generate favorable cash flows than
information limited to the financial effects of cash receipts and payments. Investors, creditors, and
others may use reported earnings and information about the elements of financial statements in
various ways to assess the prospects for cash flows. They may wish, for example, to evaluate
managements performance, estimate earning power, predict future earnings, assess risk, or to
confirm, change, or reject earlier predictions or assessments.
With regard to the benefits of financial information in investment and credit decision
making, the FASB requires that financial statements should be able to be easily understood for
those with sufficient understanding of business and economic activity, and who wish to learn this
information with sufficient will. It is intended that financial information can help nonprofessionals
and professionals in decision making, especially interested parties to learn how to use the
information properly.