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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

Differentiate broadly between financial accounting and managerial accounting.

The following comments were made at an Annual Conference of the Financial Executives Institutes (FEI). There is an irreversible movement toward the harmonization of financial reporting throughout the world. The international capital markets require an end to:

  1. The confusion caused by international companies announcing different results depending on the set of accounting standards applied.
  2. Companies in some countries obtaining unfair commercial advantages from the use of particular national accounting standards.
  3. The complications in negotiating commercial arrangements for international joint ventures caused by different accounting requirements.
  4. The inefficiency of international companies having to understand and use a myriad of different accounting standards depending on the countries in which they operate and the countries in which they raise capital and debt. Executive talent is wasted on keeping up to date with numerous sets of accounting standards and the never-ending changes to them.
  5. The inefficiency of investment managers, bankers, and financial analysts as they seek to compare financial reporting drawn up in accordance with different sets of accounting standards.

Instructions

  1. What is the International Accounting Standards Board?
  2. What stakeholders might benefit from the use of International Accounting Standards?
  3. What do you believe are some of the major obstacles to convergence?

One writer recently noted that 99.4 percent of all companies prepare statements that are in accordance with GAAP. Why then is there such concern about fraudulent financial reporting?

(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.

What are some of the major challenges facing the accounting profession?

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