lLO6

In specifying the overriding objectives of financial reporting, the board considered the economic, legal, political, and social environment in the United States. The objectives would be quite different in a socialist economy where the majority of productive resources are government owned.

Implicit in the objectives is an overall societal goal of serving the public interest by providing evenhanded financial and other information that, together with information from other sources, facilitates efficient functioning of capital markets and otherwise assists in promoting efficient capital allocation of scarce resources in the economy.²⁷

The importance to our economy of providing capital market participants with information was discussed previously, as were the specific cash flow information needs of investors and creditors. SFAC 1 articulates this importance and investor and creditor needs through three basic financial reporting objectives listed in Graphic 1-6.

The first objective specifies a focus on investors and creditors. In addition to the importance of investors and creditors as key users, information to meet their needs is likely to have general utility to other groups of external users who are interested in essentially the same financial aspects of a business as are investors and creditors.

The second objective refers to the specific cash flow information needs of investors and creditors. The third objective emphasizes the need for information about economic resources and claims to those resources. This information would include not only the amount of resources and claims at a particular point in time but also changes in resources and claims that occur over periods of time. This information is key to predicting future cash flows.

Brief-Exercises  BE1-3, BE1-4, BE1-5, BE1-6

Exercises  E1-5, E1-6, E1-7, E1-8, E1-9, E1-11, E1-12, E1-13, E1-14

Communication Case  1-5

Judgment Case  1-8, 1-9, 1-10

Real World Case  1-13