Question

Homer Winslow and Jane Alexander are discussing various aspects of the FASB’s concepts statement on the objective of financial reporting. Homer indicates that this pronouncement provides little, if any, guidance to the practicing professional in resolving accounting controversies. He believes that the statement provides such broad guidelines that it would be impossible to apply the objective to present-day reporting problems. Jane concedes this point but indicates that the objective is still needed to provide a starting point for the FASB in helping to improve financial reporting.

(b) What do you think is the meaning of Jane’s statement that the FASB needs a starting point to resolve accounting controversies?

Answer 1

In my opinion Jane’s statement indicates to to set forth fundamentals on which financial accounting and reporting standards may be based. In the current scenario, the problem is the confusion of nationwide financial reporting and how it could be made simpler for everyone involved. The situation can be resolved in several different ways; however the foremost step is establishing the objective to the result. In the absence of basic set of objectives that everyone can agree to, inconsistent standards will be developed. The main objective of unifying reporting standards is to ensure that as the economy grows globally, financial reporting does not pose a threat when international investors requires these for comparison. This will simplify the burden when an individual or group wants to evaluate a financial reports or business plan, because the global standards are the same all over.