Usefulness of Financial Reports Essay

2185 Words May 8th, 2012 9 Pages
Usefulness is the basic objective of financial accounting, according to the AASB s Statement of Accounting Concepts and Conceptual Framework. This essay discusses the theoretical principles and accounting rules underpinning financial reporting practices within the IFRS environment. Following the implementation of the International Financial Reporting Standards in 2005, many additional disclosure requirements were imposed on organisations which have proven to be costly and of little benefit to some organisations. Australia s new differential reporting framework is aimed at relieving these organisations of some of the disclosure requirements whilst remaining consistent with the
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For example, the use of historical cost accounting to measure certain assets may be more reliable but not as relevant as the fair value method would be. This was particularly evident in the 1970 s when inflation was high (Cheung, Evans, & Wright, 2010). According to the AASB Framework (2009), it is important that users are able to compare the financial statements of an entity through time in order to identify trends in its financial position and performance . Although Cheung, Evans, & Wright (2010) outlines that inconsistent use of

BFA201 ESSAY PART B: THE RESEARCH ESSAY A THEORETICAL DISCUSION accounting methods is appropriate if the information will be more relevant and reliable. In administering the framework, there is an underlying assumption that users have a certain degree of knowledge concerning business and economic activities. It is essential that the information provided in the financial statements is understandable by users (AASB Framework 2009). Cheung, Evans, & Wright (2010) highlights effective communication as the key to achieving understandability. SAC2 (1990) identifies three categories of primary users of GPFR as: resource providers such as employees, lenders, creditors, suppliers and investors; recipients of goods and services including customers, beneficiaries and tax payers; and parties performing a review or oversight function, for example parliament, government,

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