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33 Pages • Complete Study Notes • Year: Pre-2021
AC3103 Study Notes Decision –usefulness approach → an approach that deduces the information needs of financial statement users by studying their decision problems 1. who are the users of financial statements? 2. What are their decision problems - the primary users are present and potential investors, lenders and other creditors → need information on amount, timing, uncertainty of firm future cash flow - Single person Decision theory and portfolio investment theory helps understand the needs of rational, risk adverse investor → they mainly need info to assess securities’ expected return and risk measure (beta) - FS is capable of providing information for primary users to make decision and predict future firm’s performance. To enhance the predictive role of FS, there need to be useful tradeoff between relevance & reliability. Other desirable characteristics are timeliness, comparability, verifiability, and understandability - Major standard setter such as IASB and FASB have adopted the decision usefulness approach, as seen in their conceptual framework e.g accruals can be used to anticipate unrealized losses in future cash flows and futu...
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