Investors, creditors, and other users of financial statements often argue that there should be more transparency...

Investors, creditors, and other users of financial statements often argue that there should be more transparency on published financial statements. This argument is based, at least some extent, on concerns that management has too much leeway in the selection of accounting alternatives.

Team 1: Argue that management should continue to be allowed to choose among different accounting alternatives because full disclosure in the notes to financial statements provides sufficient transparency.

Expert Solution

Management should be allowed to choose among different accounting alternatives because:

Full disclosure in the notes combined with the alternatives chosen provide sufficient transparency to allow investors, creditors, and other users to evaluate the company’s financial position as well as its financial performance
The financial statements, footnotes, and supplementary schedules constitute the company’s financial report.
All significant information should be included in the financial report. Additionally, other relevant information, which can assist in understanding the financial report, is presented in narrative form. Such as management’s discussion and analysis and the letter to stockholders.
The footnotes to a company’s financial statements provide a significant amount of additional information about the items on the company’s financial statements.
In general, the footnotes disclose information that explains, clarifies, or develops items appearing on the financial statements, which cannot easily be incorporated into the financial statements themselves.

ekkarill92 answered 2 years ago

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