Explain the objective of financial reporting.

A.

According to the Conceptual Framework, "The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to accountants and tax preparers in making decisions about providing resources to the entity. Those decisions involve paying taxes, forecasting future outcomes, debt instruments, and providing or settling loans and other forms of credit."

B.

According to the Conceptual Framework, "The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to investors, lenders, management, and other creditors in making decisions about providing resources to the entity. Those decisions involve forecasting future outcomes, buying, selling, or holding equity and debt instruments, and providing or settling loans and other forms of credit."

C.

According to the Conceptual Framework, "The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity. Those decisions involve buying, selling, or holding equity and debt instruments, and providing or settling loans and other forms of credit."

D.

According to the Conceptual Framework, "The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to owners and management in internal decision-making. Those decisions involve buying, selling, or holding entity investments, the purchase of long-term assets, and the payment of loans and other forms of debt."

2.

What is predictive value?

A.

Information has predictive value if decision makers can use it as an input into processes that help forecast future outcomes. For example, companies report sales revenue each year. Financial statement users may use the prior year's revenues to predict future revenues.

B.

Information has predictive value if it provides feedback about prior evaluations. For example, financial statement users will often compare reported net income to prior earnings forecasts.

C.

The concept of predictive value determines the relevance of information. The predictability of an item can depend on its size or nature. The conceptual framework does not specify a quantitative threshold for the predictability of an item nor does it identify the specific nature of items that would be considered predictable.

D.

Predictive value allows financial statement users to identify and understand similarities and differences among several entities. Accounting standards often allow alternative methods, such as straight-line or accelerated depreciation, and requires estimates, like the useful lives of long-lived assets. A company uses predictive values in its financial information so that financial statement users can compare it with similar information from another company, companies in itsindustry, or to its prior year.