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Assigment 1 Accounting

In: Business and Management

Submitted By manuelc
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Chapter 1: The objective of financial reporting

Chapter 1 describes the objective of financial reporting, the primary user group to which financial reporting is directed, the types of decisions made by that group and the financial information useful to that group in making those decisions.

1. The boards decided that an entity’s financial reporting should be prepared from the perspective of the entity (entity perspective) rather than the perspective of its owners or a particular class of owners (proprietary perspective). Do you agree with the boards’ conclusion and the basis for it? If not, why?

Yes, we agree with the boards’ conclusion about the preparation of the entity’s financial reports from the entity perspective because this is in correspondence with the current situation of entities. In other words, under the entity perspective, the reporting entity has substance by its own; contrary to the situation under the proprietary perspective where it does not have substance separately from the proprietary one. The proprietary perspective is more accurate to the situation where entities do not exist separately from its owners or to those days where most businesses were sole proprietorships and partnerships that were managed by their owners. Nowadays, the separation between managers and owner grew, most of today’s businesses have legal substance, and multiple capital providers with limited legal liability being more appropriate, in our opinion, the entity adopted perspective.

Moreover, as the chapter explains, adopting the entity perspective does not prevent to include additional information on the financial reports that is more consistent with the proprietary perspective but can be useful for any kind of capital providers.

2. The boards decided to identify present and potential capital providers as the primary user group for general purpose

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