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Chapter 1: Question 5Q (page 22)

Briefly explain the meaning of decision-usefulness in the context of financial reporting.

Short Answer

Expert verified

Decision usefulness is the approach adopted by the accountants while preparing the financial report with the objective of assisting the current and potential investorsin making decisions regarding investments.

Step by step solution

01

Understanding the financial reporting

Financial reporting is the process of disclosing vital financial data to present the actual financial position and performance of the business. It is an important process carried out regularly by every business firm.

02

Learning the importance of financial reporting in the decision-making process.

Decision-making is a vital process that every stakeholder must carry out to earn more revenue from the business. Financial reporting is a key player in the decision-making process as it provides relevant financial data needed to make important business decisions. This emphasizes the need toprepare financial reportsmost efficiently and honestly.

So, the decision usefulness approach of financial reporting directs the accountant to make the right financial and accounting choices.

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Most popular questions from this chapter

Some individuals have indicated that the FASB must be cognizant of the economic consequences of its pronouncements. What is meant by “economic consequences”? What dangers exist if politics play too much of role in the development of GAAP?

Differentiate broadly between financial accounting and managerial accounting.

Of what value is a common set of standards in financial accounting and reporting?

How does accounting help the capital allocation process?

Question: Economic consequences of accounting standard-setting means:

(a) standard-setters must give first priority to ensuring that companies do not suffer any adverse effect as a result of a new standard.

(b) standard-setters must ensure that no new costs are incurred when a new standard is issued.

(c) the objective of financial reporting should be politically motivated to ensure acceptance by the general public.

(d) accounting standards can have detrimental impacts on the wealth levels of the providers of financial information
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