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Of what value is a common set of standards in financial accounting and reporting?

Short Answer

Expert verified

Financial statements prepared in accordance with the accepted accounting standards help in contributing to the comparability of accounting information.

Step by step solution

01

The objective of financial reporting

The objective of financial reporting is to provide financial information about the reporting entity that is useful to the users of this accounting information regarding the provision of resources to the entity.

02

Setting of standards in financial accounting and reporting

Accounting standards are generally accepted accounting principles that provide the basis for accounting policies and the preparation of financial statements.

The objective of these standards is to provide uniformity in financial reporting and ensure consistency and comparability of the information provided by the business enterprises.

Therefore, the standards set must be easily understandable and acceptable by all and significantly reduce the manipulation of information in the books of accounts.

Thus, accounting standards provide useful information to the users to interpret published reports. It provides information about the basis on which accounts have been provided, and the rules followed while preparing financial statements.

03

The value in a common set of standards in financial accounting and reporting

In the absence of the unified set of accounting standards the entities would prepare their financial statements in accordance with their needs and requirements. This would result in very diverse and therefore incomparable statements.

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Most popular questions from this chapter

(Objective of Financial Reporting) Karen Sepan, a recent graduate of the local state university, is presently employed by a large manufacturing company. She has been asked by Jose Martinez, controller, to prepare the companyโ€™s response to a current Preliminary Views published by the Financial Accounting Standards Board (FASB). Sepan knows that the FASB has a conceptual framework, and she believes that these concept statements could be used to support the companyโ€™s response to the Preliminary Views. She has prepared a rough draft of the response citing the objective of financial reporting.Instructions

  1. Identify the objective of financial reporting.
  2. Describe the level of sophistication expected of the users of financial information by the objective of financial reporting.

How does accounting help the capital allocation process?

One of the major groups that has been involved in the standard-setting process is the American Institute of Certified Public Accountants. Initially, it was the primary organization that established accounting principles in the United States. Subsequently, it relinquished its power to the FASB.

Instructions

  1. Identify the two committees of the AICPA that established accounting principles prior to the establishment of the FASB.
  2. Speculate as to why these two organizations failed. In your answer, identify steps the FASB has taken to avoid failure.
  3. What is the present role of the AICPA in the rule-making environment?

The objective of financial reporting places most emphasis on:

  1. Reporting to capital providers.
  2. Reporting on stewardship
  3. Providing specific guidance related to specific needs.
  4. Providing information to individuals who are experts in the field.

GAAP is comprised of:

  1. FASB standards, interpretations, and concepts statements.
  2. FASB financial standards.
  3. FASB standards, interpretations, EITF consensuses, and accounting rules issued by FASB predecessor organizations.
  4. any accounting guidance included in the FASB Codification.
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