COMM 318 Chapter Notes - Chapter 3: Financial Statement, Rational Expectations, Cash Flow
9 Feb 2016
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Present value model can"t be used to generate a complete set of financial statements. Decision usefulness: the ability of financial accounting information to help users make good decisions. If we can"t prepare theoretically correct financial statements, at least we can try to make financial statements more useful. Prepare the financial statements with these needs in mind to make them more applicable and useful. To answer these questions, we use economic and financial models, in particular theories of decision and investment. Individual must make a decision under conditions of uncertainty. A posterior probability is the probability of assigning observations to groups given the data. A prior probability is the probability that an observation will fall into a group before you collect the data. For financial statement info to be useful, it must help predict future investment returns. Information systems: all the conditional probabilities for a given situation (high/low state,
