Question

The owners of CSC Inc., a privately held company, are considering a public offering of the company’s common stock as a means of acquiring additional funds. Prior to making a decision about a public offering, the owners want to have a lengthy conversation with you, CSC’s chief financial officer. You have already informed the owners of the reporting requirements of the Securities and Exchange Commission, including the necessity for audited financial statements. Now the owners wish to discuss with you the objectives of financial reporting, the sophistication of users of financial information, and the stewardship responsibilities of management, all of which are addressed in Statement of Financial Accounting Concepts No. 8, Chapter 1, “The Objective of General Purpose Financial Reporting.” Required: How will you discuss the primary objectives of financial reporting? How will you describe the level of sophistication that can be expected of the users of financial information? How will you explain the stewardship responsibilities of management? What role does financial reporting play with respect to stewardship? Requirements: By Week Day 5, post your answers to the following question in paragraph form (minimum of 200 words) to this Discussion Area. Be sure to incorporate your weekly readings, citing your sources using proper APA (including in-text citations and references).

Answer 1

Answer :

1.         The primary objectives of financial reporting are to provide information that is useful:

•           To present and potential investors, creditors, and other users of financial statements in making rational investment and credit decisions.

•           In assessing future cash flows related to the company's operations and its ability to meet financial obligations and pay dividends.

•           In assessing the economic resources of the company and claims against these resources.

2.         Although the level of sophistication related to business and financial accounting matters varies both within and between user groups, users are expected to possess a reasonable understanding of business and economic activities and are expected to be willing to study the information with reasonable diligence.  Financial information is intended to be a useful tool to those who are able and willing to use it.

3.         One of the results of the corporate form of organization has been the tendency to separate ownership from management. Thus, the stewardship function has been added to the management responsibilities of recording and reporting financial information. The stewardship responsibilities of management include the following:

•           Periodic accountability to the owners not only for the custody and safekeeping of the company's resources but also for their efficient and profitable use.

•           Accountability to prospective investors and to the general public when the company's securities are offered to the public.