Solution 13.5

The main purpose of the Statement of Principles is to provide a framework from which the ASB can develop and review its accounting standards. It sets out the principles that the ASB believe should underlie the preparation and presentation of financial statements that are required to give a true and fair view.

Chapter 1 - the objectives of financial statements outlines the objective of financial statements which is to provide information about the financial performance and financial position of an enterprise that is useful to a wide range of users for assessing the stewardship of management, and for making economic decisions.

Chapter 2 - the reporting entity identified two main forms of business entities; single entities and groups. It states that an entity should prepare and publish financial statements if there is a legitimate demand for that information and the entity is a cohesive economic unit.

Chapter 3 - the qualitative characteristics of financial information identified four principal qualitative characteristics, relevance, reliability, comparability and understand ability.

Chapter 4 - the elements of financial statements sets out and discusses the definitions of the elements of financial statements assets, liabilities, ownership interest, gains and losses.

Chapter 5 - recognition in financial statements focuses on what is required to recognise a transaction that create or increases assets and liabilities, gains and losses. In order to recognise, and thus include in the accounts, any transaction that affects any of the elements of financial statements, there must be evidence of its existence so that it can be measured reliably as a monetary amount with sufficient reliability.

Chapter 6 - measurement in financial statements provides an overview of issues relevant to the measurement of assets and liabilities recognised in the balance sheet and the associated effects of gains and losses.

Chapter 7 - presentation of financial information has the objective is to communicate clearly and effectively and thus meet the objectives of Chapter 1 in the statement of principles. This chapter focuses on the way in which the information on financial performance, financial position and cash flow information is presented

Chapter 8 – accounting for interests in other entities focuses on the accounting for interests in other entities and how these interests should be fully reflected in the financial statements of the entity that has the interest and exerts the influence.