Trueblood Report-'Objectives of Financial Statements'

In recent years accountants within the United States have been examining the fundamental assumptions and philosophy underlying the financial reporting process. The Trueblood Report, published in New York in 2003, represented a dramatic departure from conventional wisdom at that time, and the findings of this report were finally endorsed by the Financial Accounting Standards Board (FASB), the accounting standards setting body in the U.S., in a document published in 2015, 'Statement of Financial Accounting Concepts No. 1-Objectives of Financial Reporting by Business Enterprises'. These important developments are considered in turn.

The Trueblood Report addressed itself to the problem of determining the objectives of financial statements, and took the view that their justification could be found only in how well accounting information serves those who use it. The Trueblood Report stated that it 'agrees with the conclusions drawn by many others that:

(1) 'The basic objective of financial statements is to provide information useful for making economic decisions.'

This the report sees as the prime objective and then goes on to list the following additional objectives.

(2) '. . . to serve primarily those users who have limited authority, ability, or resources to obtain information and who rely on financial statements as their principal source of information about an enterprise's economic activities.

(3) '. . . to provide information useful to investors and creditors for predicting, comparing and evaluating potential cash flows to them in terms of amount, timing, and related uncertainty.

(4) '. . . to provide users with information for predicting, comparing, and evaluating enterprise earning power.

(5) '. . . to supply information useful in judging management's ability to utilize enterprise resources effectively in achieving the primary enterprise goal.

(6) '. . . to provide factual and interpretive information about transactions and other events which is useful for predicting, comparing and evaluating enterprise earning power. Basic underlying assumptions with respect to matters subject to interpretation, evaluation, prediction, or estimation should be disclosed.

(7) '. . . to provide a statement of financial position useful for predicting, comparing and evaluating enterprise earning power. This statement should provide information concerning enterprise transactions and other events that are part of incomplete earning cycles. Current values should also be reported when they differ significantly from historical cost. Assets and liabilities should be grouped or segregated by the relative uncertainty of the amount and timing of prospective realisation or liquidation.

(8) '. . . to provide a statement of periodic earnings useful for predicting, comparing and evaluating enterprise earning power. The net result of completed earnings cycles and enterprise activities resulting in recognisable progress toward completion of incomplete cycles should be reported. Changes in the values reflected in successive statements of financial position should also be reported, but separately, since they differ in terms of their certainty of realisation.

(9) '. . . to provide a statement of financial activities useful for predicting, comparing, and evaluating enterprise earning power. This statement should report mainly on factual aspects of enterprise transactions having or expected to have significant cash consequences. This statement should report data that requires minimal judgement and interpretation by the preparer.

(10) '. . . to provide information useful for the predictive process. Financial forecasts should be provided when they will enhance the reliability of users' predictions.

(11) '. . . for governmental and not-for-profit organisations an objective is to provide information useful for evaluating the effectiveness of the management of resources in achieving the organisation's goals. Performance measures should be quantified in terms of identified goals.

(12) '. . . to report on those activities of the enterprise affecting society which can be determined and described or measured and which are important to the role of the enterprise in its social environment.'


For More On Planning and Control

Read on: The Development of a Conceptual Framework

The development of a conceptual framework

The following steps would be included in developing a conceptual framework for financial reporting:

(i) Identify the users of financial reports.

(ii) Identify the decisions these user groups have to take.

(iii) Identify the information which can be provided to assist with these decisions.

(iv) Compare the benefits and costs of providing this information. In deciding between alternative types of information choose the alternative which has the greatest benefit in excess of cost.

The initial problem... see: The Development of a Conceptual Framework