Users rely on financial reports to make economic decision. Explain how the constraints of the reporting process
Question:
Users rely on financial reports to make economic decision. Explain how the constraints of the reporting process may limit the usefulness of the information contains in the financial statements. (20 marks)
Question 3 Financial information is a useful measure of a company's performance. Financial statements inform interested parties of a company's overall worth, the value of the company's assets and liabilities, and the significance of the company's day-to-day transactions. Users of financial information assume companies comply with accounting principles when creating financial statements. Based on prevailing accounting conventions, this is true as long as the cost of applying an accounting principle does not exceed the benefit of doing so. For example, the materiality concept enables a company to depart from financial accounting principles if a transaction is of insufficient size to be of concern to financial statement users.
Explain the importance of materiality in the preparation of financial statements. (20 marks)
Intermediate Accounting Reporting and Analysis
ISBN: 978-1285453828
2nd edition
Authors: James M. Wahlen, Jefferson P. Jones, Donald Pagach