Essay, 2 pages (250 words)

Financial accounting theory

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The paper ” Financial Accounting Theory” is a wonderful example of an assignment on finance and accounting. The Financial Accounting theories and concepts require that the financial information disclosed during reporting should be useful to all stakeholders. The information is so that investors can make timely investment decisions and cease opportunities that may emerge. According to the Elephant article, Cowperthwaite (2014) suggests that an auditor provides financial reports to shareholders and other investors so that they could make investment decisions. However, he contemplates that current financial reporting has become much more complex than in the previous years. The complexity of the information has made it difficult for ordinary investors to interpret the meaning of the reports. Although Finance and Accounting theories advocate for the usefulness of information by making financial statement easier to understand, that is not the case. Financial reports have become much more complicated to understand the value of such information hence has come under fire. Additionally, the dynamic business environment has changed the techniques applied to prepare financial reports. Furthermore, business models have become more advanced hence the need to change the traditional forms of financial reporting has been necessitated (Scott, 2011). The hypothesis made by auditors that all users of financial reports have knowledge of the business, and the economic activities that surround the business is a pure fallacy. Some of the users of the information include the shareholders of the company. A majority of the shareholders do not understand some of the terminologies used in financial reports. Mostly they depend on stockbrokers to interpret the information. In addition, a majority of them are interested in the profitability of the company and consider other information irrelevant to them. Conversely, the premise is wrong and lacks validity (Cowperthwaite, 2014).

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