The Purpose of the IFRS Framework for the Preparation and Presentation of the Financial Statements
The framework laid down by the IFRS describes the most basic concepts, which represent the entire preparation of financial statements as well as their presentation for the different types of external users. According to Finch (2008, pp.23) “…this framework generally states the main principles for the IFRS organization and serves as an efficient guide to organization’s board on how to resolve financial issues, not directly addressed in the standards of international accounting or not interpreted thoroughly.” It also serves as a guide to the IFRS Board on matters of developing future standards.
The framework established by the IFRS organization addresses many aspects which include: financial reporting objectives. It ensures that these objectives are well laid down, defined, qualitative characteristics, and features of crucial financial information. Reporting entity of the organization, measurement, recognition, and the definition of all elements used in the construction of financial statements, and the concepts used in capital analysis and maintenance form part of its purpose too.
The main users of the IFRS Framework for the Preparation and Presentation of Financial Statement are both the potential and present lenders together with other creditors and, investors. Finch (2008, pp.213) states, “…the investors use this information to aid them in making effective decisions about providing loans, buying assets, settling loans, selling assets, holding equity among other decisions.” They also get valuable information, which makes them able to determine prospects of the financial decisions they make in the present such as future cash flow and management process. The overall aim of this framework is to establish a strong foundation for future standards in accounting that are based on internationally accepted, consistent, and converged principles
How the Qualitative Characteristics in the Framework Contribute to the Decisions made by Investors
The qualitative characteristics produced by the framework contribute to the many and different decisions made by the investors as they aid in identifying the kind of information that the investors should use in making important financial decisions. Bragg (2010, pp.76) argues that “…the qualitative characteristics provide comparable, understandable, verifiable and timely financial information which the investors can rely on in making essential financial decisions.”
The information provided faithfully represents the real and current financial status in the world thus many investors rely on it in deciding on their operations in the world. The qualitative characteristics also provide very relevant information on financial matters reflecting the current trends in the world thus contributing to the many decisions made by international investors. The predictive value, as well as confirmatory value of information established through the qualitative characteristics, is of high standards, the information laid faithfully represents the worldwide economic phenomena in both numbers and the words and is free from errors thus proving to be very useful as a tool for decision making by the investors.
The timeliness of the qualitative characteristics where they are readily and easily available to the investors also influences their decision-making process in a great way. Furthermore, the presentation of the qualities characteristics in a concise way thus making them easily understandable by many investors has contributed a lot to their application in the decision-making process used by the investors. The reliability of the qualitative characteristics also makes them preferred by many investors to make their decisions.
Reference List
Bragg, S., 2010. The Vest Pocket Guide to IFRS, San Francisco: Wiley Publishers.
Finch, C., 2008. A Student’s Guide to International Financial Reporting Standards, New York: Kaplan Publishers.