1.2 Objectives of Financial Reporting

The overall objective of financial reporting is to provide useful financial information to external users in making economic decisions.To provide different reports for different users，or to make available all of the information that users would need to assemble their own custom-designed reports，would be expensive.IASB concluded that：（1）the primary user group should be the existing and potential investors，lenders and other creditors of a reporting entity；（2）a general purpose financial report is the most efficient and effective way to meet the information needs of a variety of users.

The objective of general purpose financial reporting is 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. Those decisions involve decisions about：

（a）buying，selling or holding equity and debt instruments；

（b）providing or settling loans and other forms of credit；or

（c）exercising rights to vote on，or otherwise influence，management's actions that affect the use of the entity's economic resources.[5]

The general purpose financial reports do not and cannot provide all of the information that the external users need.Those users need to consider pertinent information from other sources，for example，general economic conditions and expectations，political events and political climate，industry and company outlooks.

1.2.1 Decisions by Primary Users and Information Needs

Decisions by investors about buying，selling or holding equity and debt instruments depend on the returns that they expect from those instruments，for example，dividends，principal and interest payments or market price increases.Similarly，decisions by creditors about providing or settling loans and other forms of credit depend on the principal and interest payments.Investors and creditors may also make their decisions about exercising rights to vote on，or otherwise influence，management's actions that affect the use of the entity's economic resources.Investors' and creditors' expectations about returns depend on their assessment of the amount，timing and uncertainty of（the prospects for）future net cash inflows to the entity.

To assess an entity's prospects for future net cash inflows，investors and creditors need for information about the resources of the entity，claims against the entity，and how efficiently and effectively the entity's management and governing board have discharged their responsibilities to use the entity's resources.

1.2.2 Financial Information Provided：Financial Position

General purpose financial reports provide information about the financial position of a reporting entity，which is information about the entity's economic resources and the claims against the reporting entity.

The financial position of an entity is affected by the economic resources it controls，its financial structure，its liquidity and solvency，and its capacity to adapt to changes in the environment in which it operates.Information about the economic resources controlled by the entity and its capacity in the past to modify these resources is useful in predicting the ability of the entity to generate cash and cash equivalents in the future.Information about financial structure is useful in predicting future borrowing needs and how future profits and cash flows will be distributed among those with an interest in the entity；it is also useful in predicting how successful the entity is likely to be in raising further finance.Information about liquidity and solvency is useful in predicting the ability of the entity to meet its financial commitments as they fall due.Information about financial position is primarily provided in a balance sheet，or a statement of financial position.

1.2.3 Financial Information Provided：Changes in Economic Resources and Claims

Financial reports also provide information about the effects of transactions and other events that change a reporting entity's economic resources and claims.The changes result from that entity's financial performance and from other events or transactions such as issuing debt or equity instruments.

1.Financial Performance

Information about a reporting entity's financial performance helps users to understand the return that the entity has produced on its economic resources.Information about the variability and components of that return is also important，especially in assessing the uncertainty of future cash flows.

Information about the return the entity has produced provides an indication of how well management has discharged its responsibilities to make efficient and effective use of the reporting entity's resources.

Information about a reporting entity's past financial performance and how its management discharged its responsibilities is usually helpful in predicting the entity's future returns on its economic resources.

2.Other Events or Transactions

A reporting entity's economic resources and claims may also change for reasons other than financial performance，such as issuing additional ownership shares.Information about this type of change is necessary to give users a complete understanding of why the reporting entity's economic resources and claims changed and the implications of those changes for its future financial performance.

1.2.4 Financial Information Provided：Efficiency of the Entity's Economic Resources

Information about how efficiently and effectively the reporting entity's management has discharged its responsibilities to use the entity's economic resources helps users to assess management's stewardship of those resources.

Management and governing board are accountable for planning and controlling the operations of the entity to those who provide resources.Examples of such responsibilities include protecting the entity's resources from unfavorable effects of economic factors such as price and technological changes and ensuring that the entity complies with applicable laws，regulations and contractual provisions.In a broad sense，because of the influence entities exert on community at both microeconomic and macroeconomic levels，they are accountable to the public.Information about management's discharge of its responsibilities is also useful for decisions by existing investors，lenders and other creditors who have the right to vote on or otherwise influence management's actions.For example，users may decide whether to hold or sell their investment in the entity or whether to reappoint or replace the management.