Question

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How do reported accounting information affect individual's decisions and perceptions about a company? Give two examples (one positive and one negative) and cite your reference.

Answer 1

Generally Accepted Accounting Principles (GAAPs) refers to standards issued by Financial Accounting Standard Board (FASB) for preparation and presentation of financial statements of any organisation. There are guidelines and principles in GAAPs relating to preparation and presentation of financial statements like Principles of Consistency, Regularity, Continuity, and Materiality etc. However, there are various issues in preparation and presentation of financial statements as per the financial reporting framework provided by the responsible authority of different countries like comparative analysis, consolidation of financial statement, etc.

Therefore, International Financial Reporting Standards (IFRSs) issued by International Accounting Standard Board (ISB) are the common financial reporting guidelines and framework so that the above issues can be resolved and an organisation can connect with foreign markets and makes financial statements more accurate and fair between countries.

International Accounting Standards helps in maintain transparency by increasing the international comparability and quality of financial statements across the countries. These standards help in managing and controlling the reporting of subsidiaries from foreign countries by adopting the similar accounting standards for reporting purpose for whole group. It also helps in consolidation of financial statements of group due to application of similar reporting framework for whole group.

Finally, we can conclude that all above reporting requirements of GAAPs & IFRSs are required in order to maintain transparency for the user of financial statements and all stakeholders. These reporting affect the individual’s decisions regarding investing and lending etc. Therefore, the inaccurate reporting affects the credibility of the organization and in order to control these inaccuracy of reporting requirement, organizations have to follow the reporting requirement issued by FASB and IASB for preparation and presentation of financial statements.