The Objectives Of Financial Reporting

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Introduction The objectives of financial reporting are a key element of financial accounting standard setting. Standard setters have identified financial accounting as providing valuation-relevant information and contracting-relevant information (Zeff, 2012). The Financial Accounting Standards Board (FASB) states that the general objective of financial reporting is to provide ‘information that is useful to represent any potential investors and creditors and other users in making rational investment, credit and similar decisions’ (FASB, 2008). It is then narrowed down into two sub-objectives; ‘information to help users in assessing the amounts, timing and uncertainty of prospective cash receipts’ (decision-usefulness) and ‘information…show more content…
It shows that an stewardship uses historical information in the objectives of financial reporting. By elevating stewardship to a secondary objective it could lead to a de-emphasis on information regarding the entity’s performance which would be unacceptable (Gassen, 2008). However the negative consequences of leaving stewardship out of the financial reporting comprises; weakening shareholder rights, earnings or valuation focus for predicative purposes; greater rules; greater focus of secondary market users; greater possibility that real and consequential loss will not be identified; discount between company objectives and financial reporting objectives (PAAinE, 2007). Objectives of financial reporting may be potentially inconsistent with the scope of financial reporting. Agency theory stresses the possibility of a divergence of interest between management and shareholders, both of which are assured to be relentlessly purposing their economic self-interest (Rudiger Smith, 2011). Perhaps it is for this reason that stewardship is characterised as a demand for information on management’s safe custody of the assets and compliance laws and regulation (AASB and Lennard, 2011). 2.2 Decision-usefulness The decision-usefulness involves the preparation of financial accounting information that studies the theory of investor decision making in order to infer the nature and types of information that investors
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