ACTG 3000 Lecture Notes - Lecture 3: Capital Market, Income Statement, Financial Statement
Document Summary
The objective of accounting analysis is to e(cid:448)aluate the degree to (cid:449)hi(cid:272)h a fir(cid:373)(cid:859)s a(cid:272)(cid:272)ou(cid:374)ti(cid:374)g (cid:272)aptures its u(cid:374)derl(cid:455)i(cid:374)g (cid:271)usi(cid:374)ess realit(cid:455) a(cid:374)d to (cid:858)(cid:858)u(cid:374)do(cid:859)(cid:859) any accounting distortions. Three potential source of noise and bias in accounting data: that introduced by rigidity in accounting rules, random forecast errors, systematic reporting choices made by corporate managers to achieve specific objectives. In its standard for intangible assets, the iasb leaves much responsibility to the managers and auditors to decide what proportion of development outlays will likely generate future revenues and should thus be considered an asset. Us accounting standard for intangible assets issued by the fasb prescribes that all research and development outlays are recognized as expense in the period that they are made. Rules-based approach therefore claim that using rules-based standards increases the verifiability of the i(cid:374)for(cid:373)atio(cid:374) i(cid:374)(cid:272)luded i(cid:374) the fi(cid:374)a(cid:374)(cid:272)ial state(cid:373)e(cid:374)ts, redu(cid:272)es (cid:373)a(cid:374)agers(cid:859) (cid:373)isuse of their reporti(cid:374)g dis(cid:272)retio(cid:374), a(cid:374)d increases the comparability of financial statements across firms.
