Explain how accounting principles can, in certain cases, create differences between financial statement information and economic reality.
Answer to relevant QuestionsWhat are the key differences between the historical cost and the fair value models of accounting?What are the major issues that an analyst needs to consider when analyzing financial statements prepared under the fair value accounting model?What is meant by earnings quality? Why do users assess earnings quality? What major factors determine earnings quality?Describe factors that bring about managerial discretion for preparing financial statements.Describe what income purports to represent under the historical cost and the fair value accounting models. How is income determined under either model?
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