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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

GROUPWORK (GAAP Terminology) Wayne Rogers, an administrator at a major university, recently said, โ€œIโ€™ve got some CDs in my IRA, which I set up to beat the IRS.โ€ As elsewhere, in the world of accounting and finance, it often helps to be fluent in abbreviations and acronyms.

Instructions

Presented below is a list of common accounting acronyms. Identify the term for which each acronym stands, and provide a brief definition of each term.

(a) AICPA (e) FAF (l) FASB

(b) CAP (f) FASAC (j) SEC

(c) EITF (g) GAAP (k) IASB

(d) APB (h) CPA

(GAAP and Standard-Setting) Presented below are four statements which you are to identify as true or false. If false, explain why the statement is false.

  1. The objective of financial statements emphasizes a stewardship approach for reporting financial information.
  2. The purpose of the objective of financial reporting is to prepare a balance sheet, an income statement, a statement of cash flows, and a statement of ownersโ€™ or stockholdersโ€™ equity.
  3. Because they are generally shorter, FASB interpretations are subject to less due process compared to FASB standards.
  4. The objective of financial reporting uses an entity rather than a proprietary approach in determining what information to report.

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.

How are financial accountants challenged in their work to make ethical decisions? Is technical mastery of GAAP not sufficient to the practice of financial accounting?

Some individuals have indicated that the FASB must be cognizant of the economic consequences of its pronouncements. What is meant by โ€œeconomic consequencesโ€? What dangers exist if politics play too much of role in the development of GAAP?

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