Summary of Learning Objectives 1. Understand the financial reporting environment. Accounting provides reliable, relevant, and timely information to managers, investors, and creditors so that resources are allocated to the most efficient enterprises. Accounting also provides measurements of efficiency (profitability) and financial soundness. Investors, creditors, management, securities commissions, stock exchanges, analysts, credit rating agencies, auditors, and standard setters are some of the major stakeholders. Illustration 1.4 explains what is at stake for each one. The objective of financial reporting is to communicate information that is useful to key decision-makers such as investors and creditors in making resource allocation decisions (including assessing management stewardship) about the resources and claims to resources of an entity and how these are changing. Ideally, all stakeholders should have access to the same information in order to ensure that good decisions are made in the capital marketplace. This is known as information symmetry. However, this is not the casethere is often information asymmetry. Of necessity, management has access to more information so that it can run the company. It must also make sure that it does not give away information that might harm the company, such as in a lawsuit where disclosure might cause the company to lose. Aside from this, information asymmetry exists because of management bias whereby management acts in its own sel