Economic and Financial Decision Making Assignment PDF
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Added on 2021-05-31
Economic and Financial Decision Making Assignment PDF
Added on 2021-05-31
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ASSESSMENT PART A The information available in any financial statement facilitates the economic andfinancial decision making of an investor. However, it cannot be concluded that each andevery information contained in such financial statements is of immense use to the users. Inorder to satisfy their primary objective of helping an investor to take sound decision, there arefew qualities which serve as prerequisites[ CITATION Bro16 \l 1033 ]. The financialstatements have got to necessarily possess the below mentioned qualities, if it wants to helpthe users. Understandability. All the information presented in the financial statements and itsannexures should be free from any sort of confusion. The data shall be prepared andoffered in such a way that it fosters easy understanding. This essentially involves thatany user who has basic business intelligence, financial wisdom and has a reasonableamount of knowledge in the field of economics, finance and taxation would be in aposition to easily comprehend the information present in the financial statements. Incases where the balance sheet and profit and loss contains amounts and transactionsthat is apparently complex, additional information should also be provided so that anysort of confusion can be cleared and a better picture be provided[ CITATION Bel17 \l1033 ].Relevance. The information presented in the financial statements must not be vagueand must be compatible with respect to the relevance to the objectives of the decisionmakers. The persons responsible for preparation of financial statements should keepin mind that mere presentation of a plethora of data would be of no use to the decisionmakers if those data do not lead to meaningful inferences and conclusions. To be
considered relevant, the data has to have some connection with the option underconsideration[ CITATION Kan17 \l 1033 ].Reliability. While it is quite evident that the financial statements as a whole cannot betotally free from any error or mistake, the reliability depends on the extent to whichthe material mistakes and errors are kept at bay. To be reliable the data should be freefrom any sort of biasedness and personal prejudice[ CITATION Ale16 \l 1033 ]. Thereshould be proper and appropriate disclosure for every item, especially those which notquantifiable. For non-financial items, the reasons should be specified as to why anamount cannot be assigned to them. Comparability. To ease the task of comparing the data of one period with another,one company with another company or various companies from the same industry orrelated industries, the information must be presented on a consistent format .Such easeof comparisons helps in the establishment of trends and aids the analytical study ofthe performance of the company as a standalone entity and also the industry as awhole. It also helps to determine the strategic direction in which the company ismoving, i.e. growth, stagnant or decline[ CITATION Lin17 \l 1033 ].Having thrown light into the qualitative characteristics of financial statements, it can beconcluded that in the opinion of the above quoted individuals the qualitative characteristics ofunderstandability do not appear to be satisfied by current reporting practices pursuant toIFRS. The disclosure requirements under the IFRS regime are too inelastic and intricate.Instead of making things easier to understand and grasp, it further complicates the decisionmaking process. Such an overflow of data puzzles a normal investor or financial choicemaker as it doesn’t assist proper and smart decision making. Mr. Bowen has rightly said“Once you get into the notes you have to be technically trained. If you’re not, lot of it couldbe misleading”. These ambiguous data challenges the very foundation of the conceptual
framework of financial reporting. It is very clear form the above mentioned points that theviews are not at all consistent with the view that corporate financial reports satisfy the centralobjective of financial reporting.ASSESSMENT TASK PART B The public interest theory: As the name suggests, this theory believes in the idea ofprosperity of the general public. It targets to offer solutions to the issues of marketinefficiencies with the only objective of making things better for the common mass or theconsumers. It is based on the notion that in the case of imperfect markets, the governmentcontrols the firms and their powers[ CITATION Vis17 \l 1033 ]. However under this concept,firms are given all the opportunities to generate satisfactory returns. Looking at the decisionof the government whereby it chooses not to make provisions for a separate set of regulation,it is quite evident that the public interest theory has been defied in the given situation. Hadthe public interest theory be given due regard, the government and the regulating agencieswould have taken the initiative in formulating a separate set of policies and decrees tosafeguard the welfare of the general public. Capture Theory: This theory is based on the foundation of the close relationship thatexists between the government and the regulating authority and the industry concerned. Allthe above mentioned participants belong to the market area for which the decision has to betaken. Under this theory, the regulators make laws in such a way that the needs and interestsof the concerned industry are fully met. This particular theory believes that regulations can betwisted and manipulated to adjust to the appeals of the ones affected by it. Applying theabove mentioned theory in the decision of the government to not to add a separate set ofregulation to the existing statute, one can easily conclude that even this theory of governancehas not been given due consideration[ CITATION Vie17 \l 1033 ]. The government has not
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