What is Special purpose framework of preparing Financial Statements?

Generally financial statements that are made available to public are prepared using such accounting and reporting framework that caters the general decision making needs of general users and thus called general purpose financial reporting framework and financial statements prepared using such framework are called general purpose financial statements. On the other hand a framework that caters the special needs of specific users of financial statements then such framework is called special purpose financial reporting framework and financial statements prepared under such framework will be called special purpose financial statements.

Special purpose framework is considered special because it differs most of the time significantly from the requirements of general purpose framework. It does not necessarily have to have all the qualities and characteristics of general purpose framework but such framework is designed to best suit the information needs of specific user(s). For example it does not have to be fair or giving true and fair view of the entity.

Examples of special purpose framework includes:

• Framework that does not comply with fundamental assumptions of general purpose framework. For example financial statements prepared using cash basis. Such financial statements may be helpful for certain stakeholders that are interested in knowing liquidity position of the entity like creditors
• Framework prepared according to taxation regulations ignoring normal accounting norms. Many a times tax regulations contradicts accounting norms. If financial statements are prepared according to guidance provided by taxation authorities then it is a special purpose financial statement based on special purpose framework
• Reporting guidelines as provided by regulatory bodies under specific situations for example at the time of liquidation or some other matters concerned authority may require preparers of financial statements to prepare using different basis of reporting
• Financial reporting guidelines as provided by the prospective lender who wants to analyse entity’s financial position and performance using specific basis. For example bank, prospective investor in preference shares, bonds or any other contract of such nature.

Special purpose framework does not necessarily have to be as well documented and detailed as normal accounting framework and standards are. If financial statements are to be prepared on different basis then excluding some guidelines of general framework and/or including some custom guidelines differing from general  framework makes up a special framework.