Decision Usefulness In Conceptual Framework

How accounting information may be decision-useful? Decision usefulness in conceptual framework? The Conceptual Framework identifies the principal classes of users of general purpose financial statements as:

  1. All of these categories of users rely on financial statements to help them in making various kinds of economic and public policy decisions. Investors need to decide whether to buy, sell, or hold shares. Lenders need to decide whether to lend and at what price. Suppliers need to decide whether to extend credit. Employees need to make rational career decisions. And so on. Information is decision-useful if it helps these people make their decisions.
  2. Because investors are providers of risk capital to the enterprise, financial statements that meet their needs will also meet most of the general financial information needs of the other classes of users. Common to all of these user groups is their interest in the ability of an enterprise to generate cash and cash equivalents and of the timing and certainty of those future cash flows. Therefore, the Conceptual Framework regards investors as the primary, overriding user group.
  3. The Conceptual Framework notes that financial statements cannot provide all the information that users may need to make economic decisions. For one thing, financial statements show the financial effects of past events and transactions, whereas the decisions that most users of financial statements have to make relate to the future. Further, financial statements provide only a limited amount of the non-financial information needed by users of financial statements.
  4. Financial statements cannot meet all of the diverse information needs of these user groups. However, there are information needs that are common to all users, and general purpose financial statements focus on meeting those needs.
  5. While the concepts in the Conceptual Framework are likely to lead to information that is useful to the management of a business enterprise in running the business, the Conceptual Framework does not purport to address their information needs. The same can be said for the Standards and Interpretations themselves.
  • present and potential investors,
  • lenders,
  • suppliers and other trade creditors,
  • employees,
  • customers,
  • governments and their agencies; and
  • the general public.

Decision Usefulness In Conceptual Framework will discussed in detail.

Show More

Related Articles

Back to top button

Adblock Detected

Please consider supporting us by disabling your ad blocker