Question

In: Accounting

The viewpoint and purpose of your paper should be clearly established and sustained. Explain how "materiality"...

  • The viewpoint and purpose of your paper should be clearly established and sustained.
  • Explain how "materiality" is defined in the conceptual framework.
  • The concepts statements provide several examples in which specific quantitative materiality guidelines are provided to firms. Identify at least two of these examples. Do you think materiality guidelines should be quantified? Why or why not?
  • The concepts statements discuss the concept of "articulation" between financial statement elements. Briefly summarize the meaning of this term and how it relates to an entity's financial statements and why you think this is important.

Please provide me two sources so I may utilize them in my paper.

  • Provide a minimum of two (2) scholarly sources in support for your arguments.
  • Provide your conclusion.

Solutions

Expert Solution

ANSWER

MATERIALITY IN CONCEPTUAL FRAMEWORK

The IFRS Foundation has as its mission to develop a single set of high quality, understandable, enforceable and globally accepted financial reporting standards based upon clearly articulated principles.

These reporting standards consist of a growing number of individual standards. The Conceptual Framework is not an International Financial Reporting Standard (IFRS) itself and nothing in the Framework overrides any specific IFRS. However, the Framework has as its purpose to,assist the International Accounting Standards Board (IASB) and individual national standard-setting bodies in promoting harmonisation of regulations, accounting standards and procedures relating to the presentation of financial statements by providing a basis for reducing the number of alternative accounting treatments permitted by IFRSs.

In determining the relevance of financial information, regard needs to be given to its materiality. Information is said to be material if omitting it or misstating it could influence decisions that users make on the basis of an entity's financial statements. Put differently, "materiality is an entity-specific aspect of relevance, based on the size, or magnitude, or both," of the items to which financial information relates. The IASB has declined to specify a uniform quantitative threshold for materiality, or to predetermine what could be material in a particular situation, because of this entity-specific nature of materiality.

REFERENCES

1. Reasonable Investor(s), Boston University Law Review, available at: http://ssrn.com/abstract=2579510

2. ^ SEC Staff Accounting Bulletin 99 - Materiality, available at: https://www.sec.gov/interps/account/sab99.html

ARTICULATION BETWEEN FINANCIAL STATEMENTS

These financial statements do not form a separate item. They are directly linked to the flow or articulation of information between one another to show a bigger picture of any business financial status. Each of the statement can present a little view of information. But if there is no flow or articulation, these little views in themselves have no such value.

The balance sheets get related to the cash flow statement, statements regarding changes in the value of equity and the income statements. The increase and decrease in the net assets due to profits or losses are recorded in income statements are also reported in specific time-period balance sheets.

The profits or losses in income statements are also recorded in those cash flow statements. Net profit and loss get mentioned in those statements of changes observed in the equity. This statement is closely related to the income statements and that balance sheet. These statements of change in equity show the flow of the equity as presented in those balance sheets.

The changes in equity get to be reported in such statements pertaining to income. A cash flow statement forms a link with those balance sheets.

Hence, you notice how each entity is providing information for the other entity to be properly described. The process of articulation is very important to give a complete meaning to any set of information.


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