Summary Financial Accounting Theory Questions

** Normative financial accounting theories focus on prescribing specific accounting methods considered the best or most correct for income measurement.**

Omdraaien

** In the late 1960s, there was a shift from normative theories to the decision usefulness approach, emphasizing the provision of information to assist investors in making economic decisions.**

Omdraaien

** The objective of financial statements, according to the IASB/FASB Framework, is to provide information to assist investors and creditors in making investment decisions.**

Omdraaien

** The two main types of information asymmetry are adverse selection (hidden information) and moral hazard (hidden action).**

Omdraaien

** Conservatism requires a higher standard of verification to record gains than to record losses, resulting in the persistent understatement of assets, earnings, and shareholders equity relative to their current values.**

Omdraaien

** The fundamental problem of financial accounting theory is how to design and implement concepts and standards that best combine the investor-informing and manager performance-evaluating roles for accounting information.**

Omdraaien

** Rule-based standards provide detailed rules for specific transactions, ensuring consistency but leading to complexity. Principles-based standards rely on general principles and professional judgment, allowing flexibility but potentially resulting in varied interpretations.### Week 2: The Decision Usefulness Approach**

Omdraaien

** The decision usefulness approach focuses on providing financial information that is useful to investors and other users in making economic decisions.**

Omdraaien