L05InfoMeasure0 - The Information Approach and the...

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The Information Approach and the Measurement Approach to Decision Usefulness A. Introduction Chapters 5 and 6 in Financial Accounting Theory discuss two perspectives of financial reporting. The information perspective regards accounting data as inputs to users’ decision process (for example, predicting future performance and valuing the firm). # It is up to the individual to process the information in the way he/she sees fit. In contrast, the measurement perspective places the responsibility for prediction and valuation on the accountants. # Financial statements in this view should reflect fair (market) values. These are very different views of financial reporting and they continue to be hotly debated. B. Information perspective This perspective has its foundation on the hypothesis of efficient securities markets (EMH). Since the EMH predicts that market participants will be able to properly interpret accounting information regardless of the form of disclosure, it is not necessary for accountants to package the information in any particular way. For example, it would be redundant for accountants to provide an estimate of the value of firm since the market price using the underlying information is at least as good or better. Furthermore, it may even be detrimental for accountants to inject their judgements in coming
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This note was uploaded on 05/06/2010 for the course COMM Comm 353 taught by Professor Zhang during the Spring '09 term at The University of British Columbia.

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L05InfoMeasure0 - The Information Approach and the...

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