Conceptual Framework for Financial Reporting

Economic resources and claims
Information about the nature and amounts of a reporting entity’s economic
resources and claims can help users to identify the reporting entity’s financial
strengths and weaknesses. That information can help users to assess the
reporting entity’s liquidity and solvency, its needs for additional financing and
how successful it is likely to be in obtaining that financing. That information
can also help users to assess management’s stewardship of the entity’s
economic resources. Information about priorities and payment requirements
of existing claims helps users to predict how future cash flows will be
distributed among those with a claim against the reporting entity.
Different types of economic resources affect a user’s assessment of the
reporting entity’s prospects for future cash flows differently. Some future
cash flows result directly from existing economic resources, such as accounts
receivable. Other cash flows result from using several resources in
combination to produce and market goods or services to customers. Although
those cash flows cannot be identified with individual economic resources (or
claims), users of financial reports need to know the nature and amount of the
resources available for use in a reporting entity’s operations.
Changes in economic resources and claims
Changes in a reporting entity’s economic resources and claims result from
that entity’s financial performance (see paragraphs 1.17–1.20) and from other
events or transactions such as issuing debt or equity instruments (see
paragraph 1.21). To properly assess both the prospects for future net cash
inflows to the reporting entity and management’s stewardship of the entity’s
economic resources, users need to be able to identify those two types of
changes.
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 return the entity has produced can help users to assess
management’s stewardship of the entity’s 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
a reporting entity’s past financial performance and how its management
discharged its stewardship responsibilities is usually helpful in predicting the
entity’s future returns on its economic resources.
1.12
1.13
1.14
1.15
1.16
Conceptual Framework
© IFRS Foundation
A21

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