Corporate Financial Statements: Uses and Limitations of Income Statement, Statement of Financial Position, and Cash Flow Statement

03 August 2018
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CORPORATE FINANCIAL STATEMENTS 1
Declaration
I declare that this assignment is all my own work and that I have acknowledged all materials
used from the published or unpublished works of other people. All references have been duly
cited.
Name:

CORPORATE FINANCIAL STATEMENTS 2
Contents
Introduction................................................................................................................................3
Uses and Limitations of the Income Statement..........................................................................4
Uses and Limitations of the Statement of Financial Position....................................................5
Uses and Limitations of the Cash Flow Statement....................................................................7
Conclusion..................................................................................................................................8
References................................................................................................................................10

CORPORATE FINANCIAL STATEMENTS 3
Introduction
The financial reporting process refers to the collection and the presentation of the current as
well as the historical financial information in relation to an entity (Nobes, 2014). The
reporting in relation to a company includes the preparation and the presentation of the
financial statements, the reports to be sent to the shareholders, the regulatory filings with the
Stock Exchanges and the related mandatory documents, records, press releases and the other
reports made by the company for the stakeholders. The format and the content of the annual
financial Statements or the annual accounts in the UK are dually governed by the Companies
Act, 1985 and by either the International financial reporting standards (IFRS) or the UK
Financial Reporting Standards (Deloitte, 2018). A company is free to choose whether to
follow the IFRS or the UK FRS, however, in the case of the listed companies, it is mandatory
to follow the International Financial Reporting Standards. The IAS-1, issued by the IFRS
states the preliminary requirements for the preparation and presentation of the financial
statements, along with the basic content and the structure. As per the IAS-1, the entities are
required to present the financial statements on annual basis, and the respective comparative
amounts of the preceding year for each of the item of the financial statements must also be set
out. The essay comprises of the critical evaluation of the uses and the limitations of main
corporate financial statements, i.e. the Income Statement, the Statement of Financial Position
and the Cash flow Statement.
According to the IAS-1, the complete set of the financial statements means the following.
Firstly, statement of financial position as at the end of the period must be prepared. Secondly,
a statement of profit and loss and other comprehensive income for the period; thirdly, a
statement of changes in equity for the period; fourthly, a statement of cash flows for the
period; and lastly, the notes, comprising a summary of significant accounting policies and