Essay on accounting theory ch6 case

Submitted By yy19855
Words: 340
Pages: 2

Case 1:
Different user groups do indeed have somewhat different user needs. Shareholders, for example, would want financial information which would tell something about the long-term growth and potential earnings increases – hopefully leading to security price increases – in the stock. Bondholders would be less interested in the overall growth of the stock but would be more interested in the overall safety and ability of the firm to pay interest and principal on the bonds. While these information needs are slightly different, they are not so different that a well developed set of financial statements should be able to cover both of these sets of needs. The same general statement applies to the other user groups mentioned in the chapter. Some problems apply more to different objectives more than to different user groups. For example, in Chapter 16 there is a conflict between cash flow predictions and accountability relative to measuring service costs of pensions. It is possible that shareholders might prefer the former measure and bondholders the latter but that is not entirely clear. Problems of this type may have to be dealt with on a case-by-case basis but this is not entirely clear.

Case 2:
Historical cost and possibly general price level adjustment might be the most understandable methods (which cuts across user groups). Management itself might prefer exit valuation since it shows liquidity available to management for assessing the possibility of