Question

If you were to create an ideal world for financial accounting, what aspects of current accounting theory would you include and which ones would you discard to deal with a lack of information symmetry? [In your answer include at least ten aspects (in total) of current accounting theory.]

Answer 1

If we are suppose to create a world for financial accounting with the aspects of accounting theory:-

l Accounting theory shows us the effective and efficient accounting and financial reports.

l Accounting theory creates an assumption and procedure for financial reports, which also helps in accounting practices and regulatory framework.

l The Financial Accounting Standards Board issued GAAP which helps to compare and show the consistency in accounting information.

l Accounting theory has a capability of adapting new method of doing business with different technology standards and covering the reporting mechanism.

l It involves the transmission that shares the data of financial information to the people who need it.

l It has a phenomenon which is known as information Asymmetry, which has the information of other organization being in one organization.

l The presence of information asymmetry generates a demand and supply of financial reporting.

l the main objective of financial reporting is that to arrange the financial information about the reporting entity that is beneficial for the existing and potential investors, lenders, and other creditors which is helpful for making the decisions for providing resources to the entity.

l The accounting theory’s perspective are important fot the managers who finds out their way of maximizing their motive and goals.

l The securities regulators of accounting theory throughout the world are aware of the fact of information asymmetry phenomenon which helps the investors protected.