The purposes of preparing a set of financial reports are often subject to different interpretations. The Hong Kong Companies Ordinance requires directors of a company to present a set of accounts to show the true and fair view of the financial situation of the company, while the HKICPA states that the financial accounts should provide information that is useful to a wide spectrum of readers. But other purposes of presenting a set of accounts are also observed in real life practices.

You are required to:

1. Discuss, from a theoretical and conceptual perspective, which purpose you consider should be regarded as the primary purpose or function of financial reporting.

(15 marks)

2. It is argued that political purpose of financial reporting is often observed but there is little way to stop such practices as management and accountants know how to apply the political purpose in a legal and legitimate way.

To what extent do you agree with this argument? (15 marks)