Decision Usefulness Approach - 2877 Words

| Decision Usefulness Approach | Can the decision usefulness approach make financial reporting more useful? | | | | | Prepared by Jing Wang Abstract This paper explores the question whether the financial statements can be made more useful. This leads to an important concept in accounting-- the concept of decision usefulness. To properly understand this concept, this paper outlines other theories from economics and finance to assist in conceptualizing the meaning of useful financial statement information. The main purpose of this paper is to introduce the concept of decision usefulness approach, related†¦show more content†¦Therefore, in order to adopt the decision usefulness approach, three major questions must be addressed: 1. Who are the users of financial statements? It is helpful to categorize users into broad groups, such as investors, creditors, managers, unions, standard setters, and governments, etc. These groups are called constituencies of accounting. * Investors * Holders of equity securities, such as common stocks, preferred shares * Holders of partnership interest * Other equity holders or owners * Creditors * Purchaser of debt instrument * Lend economic resources * Manager * Inside financial statements provider and user * Has a different incentive of using financial statements than outsiders’ * Other users (provide resources) * Employees – provide human capital in exchange for salary, remuneration and pension. * Suppliers – extend credit to facilitate sales. * Customers – prepay for goods and services. * Union, standard setters and governments-provide policies and regulations. In order to take a close look into various financial statement users’ behaviour, two theories or concepts should be outlined here: * Single-person decision theory Single-person decision theory takes the viewpoint of an individual who much make a decision under conditions of uncertainty. * It suggests how a rational individual makes optimal decisions in the presence of uncertainty. * ItShow MoreRelatedMeasurement Approach to Decision Usefulness1497 Words   |  6 PagesMEASUREMENT APPROACH TO DECISION USEFULNESS †¢ (184) MEASUREMENT APPROACH: i. ii. iii. Accountants (not investors) â€Å"undertake a responsibility† To incorporate CURRENT VALUE ACCOUNTING directly in to the F/S Provided â€Å"reasonable (37) reliability† iv. v. a. b. As part of an â€Å"increased obligation† of the accounting profession â€Å"To assist investors to predict future performance and value† Performance = N.I. Value = share price vi. Via a â€Å"more informative information system† Read MoreAn Exploration Of Andrew Lennards Article : Stewardship And The Objective Of Financial Statements1473 Words   |  6 Pagesof financial reporting, specifically; stewardship and decision-usefulness, and whether these should be a single joint objective, or two separate ones. Through his writing, Lennard educates his readers on the argument and helps them develop their own opinions. The base of the article is built around IASB’s preliminary views which work on the conceptual idea that the financial reporting framework should have an objective of decision-usefulness, and enough information will be able to be drawn fromRead MoreFinancial Accounting Theory the Reporting Environment1578 Words   |  7 Pagesto explaining why current practice is carried out in the manner that it is (positive theory). Normative theorists usually attempt to derive either the ‘true income’ or adopt the ‘decision — usefulness’ approach whereby accounting reports are an input into users’ decisions (e.g., to buy or sell shares, management decisions on the financial wealth of firms, etc.). The major issues are the impact of the changing price environment (prices) and the impact on income, assets, liabilities and equity. As aRead MoreEssay On Learning Transfer1325 Words   |  6 PagesProgram Evaluation Model The Decision-based Approach The decision-based approach is appropriate for a program established to increase retention because it allows questions to be utilized in the guidance of the program rather than objectives serving as the criteria for the program (Spaulding, 2014). Questions are asked by those directly involved in the program, such as directors that seek clarity to an issue like retention among adult learners. The decision-based approach allows questions to be presentedRead MoreFinancial Accounting Theory - Ball and Brown Study1674 Words   |  7 Pagesimpact the share price, is the efficient capital market. Namely, the efficient security market will go hand in hand with full disclosure. Once the relevant information provided by the management on the timely basis, the rational investors could make decision based on the new information. Moreover, there are some differences between the narrow window and the long window, the previous one show the strong relationship between the financial report and the changes in share price. In long window, the priceRead MoreUsefulness and Reliability of Information Provided By Corporations1474 Words   |  6 Pagesreporting is the usefulness and reliability of information provided by corporations. The financial accounting standard board defines usefulness as the information that is useful for the users in decision making (FASB, 2011). Reliability is inferred when the information is verified, objective, and can be relied on. Therefore, Statement of Financial Accounting Standards No. 157 standardizes the valuation and disclosure of fair value for assets and liabilities in order to achieve both usefulness and reliabilityRead MoreHow Models Can Be Beneficial For Sustainability Science?1042 Words   |  5 Pagesthat will lead to the best decisions regarding the longevity of environm ental systems and how to go about ensuring the sustainability of these systems. Models can be beneficial in sustainability science and provide useful information pertaining to scientists and policy makers, but that requires proper use and implementation. Models have some risk associated with them in regards to sustainability science, and if not considered, a model can have shortcomings in usefulness. By looking at both the valuesRead MoreAmerican Idol Case632 Words   |  3 Pagesdefinition of the problem presented when Marcello amp; Litzenberger analyze that professionals resistance to pursing marketing research. b) Only Mentioned Development of an Approach to the Problem.- This step occurs when they identify the information that they needed to make their objective (demonstrating the usefulness of marketing research) or theoretical framework come true, and make hypotheses. c) Research Design Formulation.- This next step is acquired when the characters decided to â€Å"whatRead MoreA Business Perspective Of Management Discipline1299 Words   |  6 Pagesbusiness sense and we look at them in the world of medicine and law there are several key similarities. These include but are not limited to the fact that there are tough decisions that need to be made. Decisions that affect the outcome of day to day activities, projects, and what not are all effected by people making tough decisions. Furthermore I believe that the discipline relates to how in most cases and most of the time people either in management, medicine, or law attempt to make the greatestRead MorePrincipal vs Rule Based Accounting1733 Words   |  7 Pagesfocused on objectives and hence user-friendly to the masses. (3) It is said that rules provide greater comparability due to application of consistent rules on events and transactions. Furthermore, Sunder’s article argues that IFR S’s principle-based approach introduces more judgement, â€Å"giving rise to greater variability in application than a more detailed rule†. However, comparability can be enhanced under PBA if more disclosures are made on key judgements made. (4) Due to its authoritative and prescriptive