The FASB has designed an accounting system that is meant to serve the needs of outside investors and creditors. However, there are other parties that are interested in a company’s performance, and they may have other needs. Consider each of the following:

A. The FASB often requires companies to estimate certain liabilities, in order to present relevant information. For example, companies that expect to pay bonuses in January of Year 2, based on earnings in Year 1, must recognize the estimated bonus expense and liability in Year 1.

Do you think that tax authorities would follow the same rule? Why or why not?

B. Lenders typically have the rights to get interest on the loan, and to be repaid at the end of the loan, but they usually don’t share in the company’s profits. Would lenders prefer neutral accounting, or conservative accounting? Why?