Definition THE IFRS FRAMEWORK

Chapter 2 – The IFRS Framework Page 23 Illustration 2 Users of financial information and why the information is of interest to them: 1. Investors Investors require information on risk and return on investment and hence an entity’s ability to pay dividends. 2. Employees Employees assess an entity’s stability and profitability. They are interested in their employers ability to provide remuneration, employment opportunities and retirement and other benefits. 3. Lenders Lenders assess whether an entity is able to repay loans and its ability to pay the related interest when it falls due. 4. Suppliers and other trade payables Suppliers assess the likelihood of an entity being able to pay them as amounts fall due. 5. Customers Customers assess whether an entity will continue in existence. This is especially important where customers have a long-term involvement with, or are dependent on, an entity, for example where product warranties exist or where specialist parts may be needed. 6. Governments and their agencies Government bodies assess the general allocation of resources and therefore activities of entities. In addition information is needed to determine future taxation policy and to provide national statistics. 7. The public The financial statements provide the public with information on trends and recent developments. This may be of particular importance where an entity makes a substantial contribution to a local economy by providing employment and using local suppliers.

9.2 Accountability of management

Management is accountable for the safekeeping of the entity’s resources and for their proper, efficient and profitable use. Shareholders are interested in information that helps them to assess how effectively management has fulfilled this role, as this is relevant to the decisions concerning their investment and the reappointment or replacement of management. Financial reporting helps management to meet its need to be accountable to shareholders and also to other stakeholders such as employees or lenders, by providing information that is useful to the users in making economic decisions.

9.3 Financial position, performance and changes in financial position

All economic decisions should be based on an evaluation of an entity’s ability to generate cash and the timing and certainty of its generation. Information about the entity’s financial position, performance and changes in its financial position provides information to support such decisions. [Framework 12] Information about an entity’s financial position is provided in a statement of financial position, previously known as a balance sheet, as outlined in Chapter 3.