Question

Explain your thoughts and add any new findings to the main objective assigned to the accounting information:

Taking as a point of comparison the IFRS (based on an approach favoring fair values ​​and giving priority to the balance sheet), the accounting regulator echoes the increasingly strong demands which express to privilege what concerns the representation of the performances of the economic activity in long term, by rehabilitating the role of the profit and loss accounts and by counting in these accounts only the results which one can consider as definitely acquired.

The main objective assigned to the accounting information is to help the good control of the exploitation and consequently the analysis of the efficiency of the transactions proves to be determining. The quality of the transactions resulting from the economic model takes precedence over the quality of the asset mix of the entity, which has value only in the synergy produced between the assets. According to Schmalenbach, a dynamic balance sheet gives an image of the movements that took place during the period and in particular, those related to the forces determining the result of the enterprise, the result giving "the measure of the management of an economic entity.” This objective relationship between the balance sheet and the result. It is advisable to smooth as much as possible the consumption of expenses which are at the origin of the creation of wealth. To produce the relevant values ​​needed to calculate the results of the activity, the balance sheet must be presented in historical costs, to which appropriate depreciation must be applied.

Answer 1

Accounting information plays an important part in the economic system. Four principal qualitative characteristics must be met for the accounting information to be useful in the management system: understandability, relevance, reliability and compatibility of information.

The legal context which describes accounting information is difficult to represent. The definitions of the accounting rules are based on a conceptual framework. The information must be comparable, relevant, and give a faithful image of the entity that one wants to describe.

An organization has a responsibility to report the company's financial standing to stockholders. The accounting information a public report for investors with the intent of disclosing all financial data. Good accounting practices helps investors trust the management team as they know exactly the points of financial strength and weakness of their investment. A company that does not maintain accounting information would be in danger of lawsuits, claims of fraud and lose access to relationships that provide capital necessary to running the business.

Organization growth is carefully outlined in the organizational business plan. When the company plans its growth, it first looks at historical accounting information to determine trends in revenue production and understand how the company spends money. Accounting information is critical in determining how much the company can take on in liabilities and costs as it tries to make the right decisions on how to expand profitability.

The importance of accounting information is to determine overall profitability. Sales, costs of manufacturing, inventory, and expenses are all recorded and presented to company management so the company’s profit levels can be determined. Financial statements like the balance sheet or statement of cash flows may also be prepared so executive management can assess the value of the company and the cash-generating functions of business operations.

Above this conceptual framework, there are reference texts defining the accounting standards in each country or area (US GAAP in the United States, IFRS partly adopted in European Union, etc.) claiming to define precise rules. The validity of financial information is assessed through comparison with these texts. There should not be any contradiction between the conceptual framework and the reference texts.