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Chapter 1: Question 2Q (page 22)

Differentiate between 鈥渇inancial statements鈥� and 鈥渇inancial reporting.鈥�

Short Answer

Expert verified

A financial statement is a formal record that explains the financial activities and position of an entity. In contrast, financial reporting is an accounting practice that involves studying the entity鈥檚 financial statements and highlights its financial information and performance.

Step by step solution

01

Purpose of Financial Statement

Financial statements are the accounting books that present the financial condition of an entity and thereby reflect the expenses and income of the entity. Financial statements are important for providing information to potential investors to obtain finance from them.

02

Purpose of Financial Reporting

Financial reporting involves examining various financial statements to make important decisions by the stakeholders after understanding and interpreting the financial statements. It involves recording the operations of financial activities in the books of accounts.

Therefore, Financial statements can be seen as a result of the financial reporting process.

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Most popular questions from this chapter

Of what value is a common set of standards in financial accounting and reporting?

The Sarbanes-Oxley Act was enacted to combat fraud and curb poor reporting practices. What are some key provisions of this legislation?

Economic consequences of accounting standard-setting means:

(a) standard-setters must give first priority to ensuring that companies do not suffer any adverse effect as a result of a new standard.

(b) standard-setters must ensure that no new costs are incurred when a new standard is issued.

(c) the objective of financial reporting should be politically motivated to ensure acceptance by the general public.

(d) accounting standards can have detrimental impacts on the wealth levels of the providers of financial information.

(FASB and Standard-Setting) Presented below are four statements which you are to identify as true or false. If false, explain why the statement is false.

  1. GAAP is the term used to indicate the whole body of FASB authoritative literature.
  2. Any company claiming compliance with GAAP must comply with most standards and interpretations but does not have to follow the disclosure requirements.
  3. The primary governmental body that has influence over the FASB is the SEC.
  4. The FASB has a government mandate and therefore does not have to follow due process in issuing a standard.

IFRS is comprised of:

(a) International Financial Reporting Standards and FASB Financial Reporting Standards.

(b) International Financial Reporting Standards, International Accounting Standards, and International Accounting Interpretations.

(c) International Accounting Standards and International Accounting Interpretations.

(d) FASB Financial Reporting Standards and International Accounting Standards.
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