Decision Usefulness Approach
| Decision Usefulness Approach | Can the decision usefulness approach make financial reporting more useful? | | | |
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Prepared by Jing Wang
Abstract
This paper explores the question whether the financial statements can be made more useful. This leads to an important concept in accounting-- the concept of decision usefulness. To properly understand this concept, this paper outlines other theories from economics and finance to assist in conceptualizing the meaning of useful financial statement information.
The main purpose of this paper is to introduce the concept of decision usefulness approach, related theories, and its applications in practice. It points out that accountants cannot proceed to make financial statements more useful until they know what usefulness means. As getting more understanding of the usefulness of information, it concludes that the decision usefulness approach leads firms to make financial statement more useful to their users.
Table of Contents
Introduction3
The Concept of Decision Usefulness 3 Who are the users of financial statements? 4 What are the objectives to provide useful financial statements to users?6 What are the decision problems of financial statement user? 7
The Application of Decision Usefulness Approach8
The reaction of professional accounting bodies to the decision usefulness approach8
Conflicts of incongruent goals 9
Reality of using decision usefulness approach to financial reporting9 Conclusions 10
Can the decision usefulness approach make financial reporting be more useful?
Introduction
A decision usefulness approach underlies Section 1000 of the CICA Handbook, and the Conceptual Framework of the FASB in the United States. The essence of this approach is that investors should be supplied with information to help them make good investment decisions. One has only to
|
Prepared by Jing Wang
Abstract
This paper explores the question whether the financial statements can be made more useful. This leads to an important concept in accounting-- the concept of decision usefulness. To properly understand this concept, this paper outlines other theories from economics and finance to assist in conceptualizing the meaning of useful financial statement information.
The main purpose of this paper is to introduce the concept of decision usefulness approach, related theories, and its applications in practice. It points out that accountants cannot proceed to make financial statements more useful until they know what usefulness means. As getting more understanding of the usefulness of information, it concludes that the decision usefulness approach leads firms to make financial statement more useful to their users.
Table of Contents
Introduction3
The Concept of Decision Usefulness 3 Who are the users of financial statements? 4 What are the objectives to provide useful financial statements to users?6 What are the decision problems of financial statement user? 7
The Application of Decision Usefulness Approach8
The reaction of professional accounting bodies to the decision usefulness approach8
Conflicts of incongruent goals 9
Reality of using decision usefulness approach to financial reporting9 Conclusions 10
Can the decision usefulness approach make financial reporting be more useful?
Introduction
A decision usefulness approach underlies Section 1000 of the CICA Handbook, and the Conceptual Framework of the FASB in the United States. The essence of this approach is that investors should be supplied with information to help them make good investment decisions. One has only to
References: Higson, A. (n.d.). Effective Financial Reporting and Auditing: Importance and Limitations. http://www.qfinance.com/auditing-best-practice/effective-financial-reporting-and-auditing-importance-and-limitations?page=2 Scheid, J. (n.d.). How financail statements are used in decison making. http://www.brighthub.com/office/finance/articles/109327.aspx Scott, W. T. (2009). Financial Accounting Theory (5th ed.) . Toronto: Pearson Prentice Hall.