CPA - Wiley Exam Question 2. According to the FASB conceptual framework, the objectives of financial reporting for business enterprises are based on a. Managers Decisions . b. Reporting for regulators. c. The need for conservatism. d. The needs of the users of the information.?

the correct option is "D" which is the needs of the users of the information.

Financial Accounting Standards Board has set the objective for financial reporting should be according to the needs of the users of the information.

The objectives of of financial reporting for business enterprises are based on (d.) the needs of the users of the information.

According to the FASB conceptual framework, the objectives of financial reporting for business enterprises are based on  The needs of the users of the information

TheFASBhasbeengiventwocharges.First,itistodevelopaconceptualframeworkofaccountingtheory.Second,itistoestablishstandards(generallyacceptedaccountingprinciples)forfinancialaccountingpractice.Theintentistodevelopatheoreticalfoundationofinterrelatedobjectivesandconceptsthatleadstotheestablishmentofconsistentfinancialaccountingandreportingstandards.Inotherwords,theconceptual

R            A      frameworkshouldprovidealogicalstructureanddirectiontofinancialaccountingand

reporting.Thisconceptualframeworkisexpectedto:

1.    guidetheFASBinestablishingaccountingstandards

2.    provideaframeofreferenceforresolvingaccountingquestionsinsituationswhereastandarddoesnotexist

3.    determinetheboundsforjudgmentinthepreparationoffinancialstatements

4.    increaseusers’understandingofandconfidenceinfinancialreporting

5.    enhancecomparability

TheFASBexpectsthattheconceptualframeworkwillencouragecompaniestoprovidefinancial(andrelated)informationthatisusefulinefficientlyallocatingscarceeconomicresources in capital and other markets.1

Exhibit2-1showstherelationshipamongtheobjectives,concepts,andstandards,

theirpurposes,andthedocumentsissuedbytheFASB.TheoutputsoftheconceptualframeworkareStatementsofFinancialAccountingConcepts;todate,eighthavebeenissued.Theoutputsofthestandard-settingprocessareincludedintheFASBAccountingStandardsCodificationdiscussedinChapter1.ThestandardscontainedintheCodificationidentifythepreferableaccountingpracticefromthevariousalternativesthatariseinresponsetothechanging,dynamicbusinessenvironment.Asmuchaspossible,theFASBconsidersitsconceptualframeworkinestablishingthesestandards.

Becauseofthelargetask,theFASBdivideditsconceptual frameworkactivitiesintoseveral projects. Exhibit2-2shows these projects. Thefirstprojectdealtwithidentifying

1.     This discussion is based on a background paper,“The Conceptual FrameworkProject,” FinancialAccountingStandards Board (Stamford, Conn., 1980).

theobjectivesoffinancialreporting.ThisprojectresultedinFASBStatementofFinancialAccountingConceptsNo.1,“ObjectivesofFinancialReportingbyBusinessEnterprises.”Thisdocumentestablishedthefocusoftheremainingprojects,whicharedividedintotwogroups(accountingandreporting).TheQualitativeCharacteristicsProjectlinked

EXHIBIT2-2        ConceptualFrameworkProjectsforFinancialAccountingandReporting

Objectives Project

Accounting                                                                                                     Reporting

Projects                                                                                                         Projects

QualitativeCharacteristicsProject

Elements                                                                                             FinancialStatements

andFinancialReporting

Recognition                                                                                                       Income

Measurement                                                                                                  CashFlow

andLiquidity

AdaptedfromFigure1in“TheConceptualFrameworkProject,”FinancialAccountingStandardsBoard(Stamford,Conn.,1980).

Answer (D) is the correct answer: The objectives of financial reporting for business enterprises are based on the needs of the users (internal and outsiders) of the informatioin.

D. One of the objectives of financial reporting identified by SFAC No. 1 is to provide information that is useful to users in their decision making.

Response A is incorrect because GAAP is derived from the objectives.

Response B is incorrect because financial statements report on the business entity, not the management. Management's stewardship may only be indirectly inferred from the financial statements.

Response C is incorrect because conservatism is a fundamental concept of SFAC No. 1.

I completely agree with the answers to colleagues

Correct answer is

d. The needs of the users of the information.

One of the objectives of financial reporting identified by SFAC No. 1 is to provide information that is useful to users in their decision making. 

d)the needs of the users of the information

option d. .................................