IAS 1 applies to all entities, such as profit-oriented and not-for-profit entities. The UN/CEFACT developed, with respect to Commonly Accepted Accounting Principles, ( GAAP ), internal or external monetary reporting XML messages to be utilised among enterprises and their partners, such as private interested parties (e.g. bank) and public collecting bodies (e.g. taxation authorities).
Several entities present, outside the financial statements, a financial review by management that describes and explains the primary functions of the entity’s monetary overall performance and financial position, and the principal uncertainties it faces.
Through financial statement evaluation managers can conveniently compare the company’s overall performance in time periods thereby providing them an understanding of regardless of whether the tactics adopted are advantageous to the corporation thereby assisting them in deciding the fate of the strategies.
Nonetheless, the exercise of prudence does not permit, for example, the creation of hidden reserves or excessive provisions, the deliberate understatement of assets or earnings, or the deliberate overstatement of liabilities or costs, for the reason that the financial statements would not be neutral and, hence, not have the good quality of reliability.
The preparers of financial statements do, having said that, have to contend with the uncertainties that inevitably surround quite a few events and situations, such as the collectability of doubtful receivables, the probable useful life of plant and equipment and the number of warranty claims that could take place.