Question

1. Why financial statements are valuable sources of information about companies.

2. How financial reporting addresses the information demands of current or potential stakeholders allocating resources and monitoring manager activities.

3. How the supply of financial information is influenced by the costs of producing and disseminating it and by the benefits it provides..

4. How accounting rules are established, and why those management can shape the financial information communicated to outsiders and still be within those rules.

5. Why financial reporting philosophies and detailed accounting practices sometimes differ across countries.

6. Why International Financial Reporting Standards (IFRS) influence the accounting practices of U.S. companies

Answer 1

1. A company's financial statement provides valuable information that is useful to the various parties of the company like the investors, creditors, and analysts. They use the information to evaluate a company's financial performance.Also, the information is required by the law, the government needs it all. The past information is used to project the company's future performances and the management communicates with the outside parties like news media and other investors with the information to tell them about the position of the company.

2. Both the current and the potential investors will likely require financial statements to be provided, since they are the owners or potential owners of the business, and want to understand the performance of their investment, the expected rate of return, etc. By providing accurate and timely measures of performance, financial reporting helps in fulfilling the capital resource allocation and the other investing activities.

3. Managers need to know how the business is performing so they need to see the financial reports to see how much profit or loss is made and the reasons thereon. They also need to know usage such as hours,labour, and raw materials. These information helps them to think properly and allow them to make wise decisions on how much to spend for raw material procurement, how much to pay for wages, how much technicians are required, etc

4. The Financial Accounting Standards Board or FASB has the authority to establish and interpret generally accepted accounting principles (GAAP) in the United States for public and private companies, as well as for nonprofit organizations. GAAP refers to a set of standards for how companies, nonprofits, and governments should prepare and present their financial statements.  The FASB is governed by seven full-time board members because of which they work to let people know and understand how accounting works. They allow the companies to shape the records in such a way that it discloses only the information that is required by the outside parties the most and no unnecessary or irrelevant information is available for unconcerned party.

5. Financial reporting philosophies and Accounting practices evolve differently across countries because business relations evolve differently, and business relations differ because of different environmental factors like political and legal systems, economics and culture, etc. It matters how accounting had been developed in the particular company.

6. International Financial Reporting Standards (IFRS) set common rules so that financial statements can be consistent, transparent and comparable. IFRS are issued by the International Accounting Standards Board (IASB). They tell how companies need to maintain and report their accounts. IFRS were established to create a common accounting language, so that businesses and their financial statements can become easy, understandable and reliable from company.