Session 7: Financial Reporting and Analysis: An Introduction Reading 31: Financial Reporting Standards
LOS a: Explain the objective of financial statements and the importance of reporting standards in security analysis and valuation.
Which of the following statements about financial statements and reporting standards is least accurate?
A) |
Financial statements could potentially take any form if reporting standards didn’t exist. | |
B) |
Reporting standards focus mostly on format and presentation and allow management wide latitude in assumptions. | |
C) |
The objective of financial statements is to provide economic decision makers with useful information. | |
Given the variety and complexity of possible transactions, and the estimates and assumptions a firm must make when presenting its performance, financial statements could potentially take any form if reporting standards didn’t exist. Reporting standards ensure that the information is “useful to a wide range of users,” including security analysts, by making financial statements comparable to one another and narrowing the range within which management’s estimates can be seen as reasonable. Reporting standards limit the range of assumptions management can make. |