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Chapter 2: 3CA (page 69)

Homer Winslow and Jane Alexander are discussing various aspects of the FASB鈥檚 concepts statement on the objective of financial reporting. Homer indicates that this pronouncement provides little, if any, guidance to the practicing professional in resolving accounting controversies. He believes that the statement provides such broad guidelines that it would be impossible to apply the objective to present-day reporting problems. Jane concedes this point but indicates that the objective is still needed to provide a starting point for the FASB in helping to improve financial reporting.Instructions

  1. Indicate the basic objective established in the conceptual framework.
  2. What do you think is the meaning of Jane鈥檚 statement that the FASB needs a starting point to resolve accounting controversies?

Short Answer

Expert verified
  1. The primary objective is to supply accounting information about the reporting organization beneficial to existing and capable equity investors, lenders, and other users in creating decisions about supplying resources to the organization.
  2. The objective of this statement is to describe the fundamentals on which reporting standards and financial accounting may be dependent. Without a few definite sets of objectives agreeable to all, uncertain standards will be advanced.

Step by step solution

01

Meaning of Financial Reporting

Financial reporting is a structured method of listing and displaying a firm鈥檚 accounting data. The reports show a company鈥檚 financial health and accomplishments in a particular period.

02

Explanation for statement ‘a’

The fundamental purpose is to supply accounting information to the reporting entity that is fruitful for investors, lenders and creditors in preparing decisions about supplying resources to the organization. Homer Winslow and Jane Alexander argue over different features of the Financial Accounting Standards Board (FASB) concepts statement that has been developed with the motive of improving financial reporting. Homer shows that this declaration supplies less support to the practitioners in handling accounting controversies. He shows that the statement supplies such broad guidelines that it would not be possible to use the objective for solving existing-day reporting issues. Jane acknowledges this point, but shows that the motive or objective of the statement is still required to supply a beginning point for the FASB to enhance financial reporting.

03

Explanation for statement ‘b’

This statement aims to set out the principles on which financial accounting and reporting standards may be dependent. Erratic standards will be advanced without a basic set of objectives agreeable to everyone. For instance, a few believe that accountability should be the basic purpose of financial reporting. Others say that anticipation of future cash flows is vital. It follows that individuals who affirm that responsibility is the fundamental objective may arise at various financial reporting standards than others who argue for anticipation of cash flow. Merely by setting up a few uniform beginning points, accounting can never claim basic consistency in setting up accounting principles.

The Board itself can be an important user and, therefore, the most direct recipient of the support provided by this declaration. However, the knowledge of the purposes and methods the Board used should allow everyone keen on financial accounting standards to easily understand the content and demerits of information supplied by financial accounting and reporting, thereby improving their capability to use that information efficiently and improving confidence in financial accounting and reporting.

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Explain how you would decide whether to record each of the following expenditures as an asset or an expense. Assume all items are material.

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BE2-9 (L05) If the going concern assumption is not made in accounting, discuss the differences in the amounts shown in thefinancial statements for the following items.

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