Accounting

How does the Conceptual Framework relate to analysts view of financial statements?

Conceptual Framework relate to analysts view of financial statements:

 

  1. Accounting standards should help provide relevant and reliable financial information.
  2. Companies that operate in risky business environments or that enter into risky kinds of transactions are likely to experience real ups and downs in their performance. In such cases, volatility of reported earnings results from the real transactions and activities of the company.
  3. In other words, the statement of comprehensive income reflects the underlying risks. It is not the role of financial accounting and reporting to try to smooth the company’s earnings by, say, deferring profits in good years and deferring expenses in bad years. The amounts reported in the financial statements would not be reliable because they do not reflect real phenomena.

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