Question

Understand the financial reporting environment.

(Q1) List the 3 essential characteristics of FINANCIAL accounting & How does it differ fromwith Managerial acct.

(Q2) List the 4 financial statements typically provided:

Q4. What is the objective of financial reporting?

Q5 What does decision-usefulness mean in the context of financial reporting.  

Q6. Why do we need a common set of standards in financial accounting and reporting?

Answer 1

Financial Accounting is the process in which business transactions are recorded systematically in the various books of accounts maintained by the organization in order to prepare financial statements

1.Essential character of Financial accounting and how it differs from Managerial accounting

1.Financial accounting considers only those transactions which are of historical nature i.e the transaction which have already taken place. No futuristic transactions find any place in financial accounting whereas Managerial accounting may address budgets and forecasts, and so can have a future orientation.

2.Financial accounting is a legal requirement. It is necessary to maintain the financial accounting and prepare financial statements there from, whereas Managerial accounts are prepared based on the requirement of business and are not required to be prepared by any statute.

3.The process of financial accounting gets affected due to the different accounting policies followed by the organization whereas managerial accounts are customized to the requirement of the organization and are not prepared based on some rules.

2.Four financial statement typically provided

1.Balance sheet, 2.Income statement, 3.Statement of cash flow, 4.Statement of shareholder's equity

4.Objective of financial reporting

According to IASB objective of financial reporting is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions. It is useful to present and potential equity investors, lenders and other creditors in making decision about providing resources to the entity.

5.Decision-usefulness

Decision usefulness approach to financial reporting is an approach to the preparation of financial accounting information that emphasis on the investor decision making in order to infer the nature and types of information that investors need. It is an approach usually adopted to satisfy the information needs of the primary users of the financial reports of the reporting entities i.e investors and creditors.

6.Why we need common set of standards in financial reporting

Comparability - Financial statement prepared based on common set of standards facilitates comparison of them with that of other entities.This comparison helps in making informed investment and business decisions.

Relevance, verifiability, and consistency - Accounting standards ensure that accounting information presented in financial documents or reports is not only relevant but also consistent. The common set of accounting standards such as GAAP guarantees that the financial information can be relied on as accurate.