Aspects of this post have also given rise to some controversy. The post begins by making the general point that financial information is presented in the form of a structured set of financial statements comprising primary statements and supporting notes and, in some cases, supplementary information.
Components of financial statements
The primary financial statements are as follows.
- Profit and loss account
- Statement of total recognized gains and losses
- Balance sheet
- Cash flow statement
Profit and loss account and statement of total recognized gains and losses are the “statements of financial performance”.
The notes to the financial statements “amplify and explore” the primary statements; together they from an “integrated whole”. Disclosure in the notes does not correct or justify non disclosure or misrepresentation in the primary financial statements.
“Supplementary information” embraces voluntary disclosures and information which is too subjective for disclosure in the primary financial statement and the notes.
Accounting for interests in other entities
Financial statements need to reflect the effect on the reporting entity’s financial performance and financial position of its interest in other entities. This involves various measurement, presentation and consolidation issues which are dealt with in this post of the statements.
The statement of principles does not have direct effect. It is not an accounting standard with which companies have to comply. Having said that, it is influential and persuasive, especially where there is no specific standard dealing with an issue. The statement should help structure new statements and create a coherent framework; this in turn will prevent controversy and help enhance the reputation of the accounting profession.