BUS 421 Chapter Notes - Chapter 3: Belief Revision, Main Diagonal, Financial Statement

• School: Simon Fraser University
• Department: Business Administration
• Course: BUS 421
• Professor: Irene Gordon

Document Summary

Decision usefulness the ability of financial accounting information to help users make decisions. Takes viewpoint of an individual making decisions under uncertainty. Recognizes that state probabilities are no longer objective and sets out a formal procedure whereby the individual van make the best decision. Allo(cid:449)s additio(cid:374)al i(cid:374)fo(cid:396)(cid:373)atio(cid:374) to (cid:271)e o(cid:271)tai(cid:374)ed to (cid:396)e(cid:448)ise the de(cid:272)isio(cid:374) (cid:373)ake(cid:396)"s su(cid:271)je(cid:272)ti(cid:448)e assess(cid:373)e(cid:374)t. Uses prior probabilities to calculate posterior probabilities which are used to evaluate a set of alternatives. Financial statements can still be useful to investors even though they do not report directly on future cash flows by means of present value-based calculations. Links the relationship between current financial statement information and future performance (likelihood) I(cid:374)fo(cid:396)(cid:373)ati(cid:448)e (cid:449)he(cid:374) it (cid:272)ha(cid:374)ges the de(cid:272)isio(cid:374) (cid:373)ake(cid:396)"s p(cid:396)io(cid:396) p(cid:396)o(cid:271)a(cid:271)ilities. Trade-off between relevance and reliability impacts main diagonal probabilities. Specifies, conditional on each state of nature, the objective probability of each possible financial statement evidence item.