Accounting final paper

Let’s Talk Accounting

David Bumford

Kaplan University

9-9-14

a) Basic objectives financial accounting concepts :

The conceptual framework for financial reporting establishes the concepts that underlie financial reporting. The framework is a coherent system that flow from an objective.

The basic objectives of financial accounting concepts are as follows:

· It provides information’s which are useful to the investors and creditors who want to take an investment and other resource allocation decision.

· It helps the individuals who have a reasonable understanding of the business in assessing a firm’s ability to generate cash inflows.

· It also provides information to help the investors and the creditors to assess the timing, amount and uncertainty of the firm’s future cash flows (cash inflows and outflows). It’s useful in knowing the firms actual condition and whether it can provide returns to the creditors and investors

· It provides information about the assets (economic resources); liability and equity (claims) of the firm. It provides information if there is any change in the asset or claim due to any transaction or events.

b) FASB needs starting point to resolve accounting controversies :

Financial accounting standard boards (FASB) are a private, NPO whose main objective is to establish GAAP in public’s interest. FASB replaced AICPA in 1st July 1973. FASB establishes and improves the standard of financial reporting and accounting.

There is lot of controversies going as to what should be the primary objective of the financial reporting. Some believe it should be accountability other say the prediction of future cash flows should be the primary objective. It is difficult to decide which is more important. It is understood that individuals who believe accountability should be the primary objective may accept a different financial reporting to those who argue that prediction of cash flow should be primary.

Without any basic set of objectives that everyone follows or agrees, no consistent standard can be developed. The purpose of the above statement is to set forth fundamentals on which the financial accounting and reporting standard should be based.

So, this could be achieved only by establishing some consistent starting point so that accounting can achieve some consistency in establishing the principles.