Question

The FASB's objectives for financial reporting in SFAC are similar in some ways to the Trueblood Report but differ in numerous respects. What are the major differences in the two documents? Does the FASB's attempt provide a more reasonable general framework given the politicized environment in which the FASB must operate? How does Chapter 1 of the joint conceptual framework differ from these documents and what does it say about financial reporting standard setting going forward? (SFAC 8, which includes Chapter 1, is posted on Blackboard in the assignments area).

Answer 1

Financial accounting standard board(FASB) -

The objectives of FASB are general purpose external financial reporting by business enterprises. The objectives arise from the needs of external users who do not have authority to prescribe the information they want and rely on information management communicates to them.

Trueblood Report-

It is a report of Objectives of Financial Statements , published by the American Institute of Certified Public Accountants, that suggested a conceptual framework for financial accounting and led to the Statements of Financial Accounting Concepts that were issued by the Financial Accounting Standards Board in the U.S.

Difference between Fasb’s report and trueblood report

1) FASB REPORTING OBJECTIVES states that financial reporting should provide helpful information to present and potential investors and other users in making rational investment, and similar decisions. Whereas,

Trueblood report states that the basic objective of financial statements should provide information useful for making economic decisions

2) FASB reporting states that financial reporting should provide helpful information to present and potential investors and other users in making rational investment, and similar decisions. Whereas,

The trueblood reporting committee sets rules for accountants and external users.

3) The FASB reporting objectives had been developed in framework of a capitalist environment, so that accurate and complete information is obtained in order to operate efficient capital markets. Whereas,

Trueblood reporting which was , published in New York in 2003, represented a dramatic departure from conservative knowledge of that time. It appeared of the view that financial reports should produce something for everyone.

Clearly, FASB's attempt provide a more reasonable general framework given the politicized environment in which they operate, since the objectives of financial reporting are not escapable .They are affected by the economic, legal and social environment in which financial reporting takes place. It is also expected to provide information about how an enterprise’s financial performance for a period and about how well management of an enterprise can discharge and ease out the responsibility for business owners.

According to the Chapter 1 of the Joint Conceptual Framework, major objectives of general purpose financial reporting is to provide financial information regarding the reporting entity which is useful for existing and potential stakeholders in making decisions in relation to providing resources to the entity.

The chapter explains the objectives of financial statements which provide information about an entity's assets, liabilities, equity, income and expenses useful for financial statements users.

This chapter is for the description of measurement bases i.e., historical cost and current value, the information that they provide and their advantages and disadvantages.