COMM 318 Lecture Notes - Lecture 8: Efficient-Market Hypothesis, Random Walk, Time Series
8 Apr 2016
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Chapter 3: the decision usefulness approach to financial reporing. Decision usefulness: the ability of inancial accouning informaion to help users make good decisions. Good place to begin for how individuals make raional decisions under certainty. Single person decision theory: takes viewpoint of individual who must make a decision under condiions of uncertainty. State probabiliies are not objecive (ideal condiions only) Sets up procedure to make best decisions given alternaives states of nature probabiliies. Relevant to accouning b/c fs provide informaion useful for decisions. Noise: weakening of relaionship b/w current fs informaion and future performance due to error probabiliies (low earnings quality) Transparent, precise, high quality: f/s that are highly informaive, this is what the informaion system is called. Management discussion and analysis: standard that requires irms to provide a narraive explanaion of company operaions to assist investors to interpret irm"s inancial statements. Beyond requirement of gaap, it is decision useful (for now)
