Question

Discuss the following statements in the context of the conceptual framework for financial reporting: (1) Accounting is considered useful for users of its information, but it only gives information. (2) Users of accounting information are heterogeneous, but have similar needs. (3) While both "relevance" and "faithful representation" are desired characteristics of accounting information, accounting standard-setters often find themselves in a position of a trade-off between both qualities.

Answer 1

(1) Accouning can be used by internal users and external users

• Internal ussers:
• Accounting supplies managers and owners with significent financial data that is useful for decision making. This type of accounting is genarally refered as managment accounting.
• The way the internal usser employs aconing information include teh following:

For assessing how managers has discharged their duties for protecting and managing the company resources

For taking the decision about when to borrow and to make investment.

For shaping decision about epansion and downwising.

•   External resources:  
• Owners and prospective owners.
• Has the company earned satisfactory income on its total investment?
• Should an investment be made in this company?
• Should the present investment be increased, decreased, or retained at the same level?
• Can the company install costly pollution control equipment and still be profitable?

• Customers: Does the company offer useful products at fair prices?

Will the company survive long enough to honor its product warranties?

• Governmental units: Is the company, such as a local public utility, charging a fair rate for its services?
• General public: Is the company providing useful products and gainful employment for citizens without causing serious environmental problems?

(2)

As explained in the above question user of accounting infromation are Hetrogenous in nature as there are different user that user the finaicial information.

It can be are as follows:

For managers: Decision making purposer.

For Shareholders : Assesing the financial performances and taking the decision making.

For Governmnet : Determingbthe tax liablity and iposing the taxes and collecting and also examining wheather the company is compling the comliances frame work.

For Compitiors: For Assesing the finanacial position of a company.

(3)

Relevance:

Information should be bear and timely on decision making process by processing preductive or confirmatory value.

Faithfull Representation:

Information sould be truthful,complete, natural anf free from errors.