Role Of Financial Statements Essay

1655 WordsDec 1, 20117 Pages
disguised so as to obscure the actual position and performance of the entity preparing the report. However, even without persons behaving in a less than forthright manner, the value of general purpose reports can be limited if the external users relying on them cannot readily comprehend the information. In particular, if an entity creates its financial reports using unique accounting practices and methods, the value of information presented is significantly undermined. The financial report could not be properly understood without first understanding that entity's unique accounting practices. 32. Accounting standards therefore provide a general framework to communicate financial information so that the financial performance and position of an entity can be meaningfully assessed. Although accounting standards do not require identical reports from all entities, persons with knowledge of the basic framework and degree of discretion available to a given entity are able to readily discern the information relevant to them. This information enables investors, creditors, analysts, regulatory authorities and the entities themselves to make informed decisions about the allocation of resources. ok 33. The significantly improved comprehensibility of reports produced in accordance with accounting standards promotes investor confidence and market integrity. Investors, shareholders, regulators and other stakeholders can more accurately assess the position of entities, enhancing the integrity of the market. Where a market is seen to operate with integrity, investor confidence generally improves. Investors can also make investments in individual entities with confidence in that entity. This general and individual confidence leads to a reduction in the cost of capital throughout the economy. Public confidence in the integrity of the financial reporting framework is therefore central

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