Chapter 5_Solutions

Chapter 5_Solutions - Suggested Solutions to Assigned...

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Suggested Solutions to Assigned Problems in Chapter 5: 1, 8, 17, 18 1. The information perspective views financial reporting as a means to convey useful information to investors. Investors must then decide whether to use this information in forming their own posterior probabilities of future profitability and share returns. The information perspective is consistent with the historical cost basis of accounting, but does not rely on it. It appears, on the basis of both theory and empirical evidence, that financial statements, traditionally containing a large historical cost-based component, provide useful information to investors. However, there is no particular reason why the information must be historical cost-based. RRA information is not historical cost-based, nor is much of the information in notes and MD&A. The essence of the information approach is that, as mentioned above, investors are assumed to use accounting information, and any other relevant information as well, in forming their own assessments of future performance -- the accountant does not do it for them. The particular form of disclosure does not matter, only the fact that the information is disclosed. Thus, the information perspective can be used to justify historical cost as the basis of the financial statements proper, while supplementing the statements with
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This note was uploaded on 12/14/2010 for the course ACC 706 taught by Professor Shadifarshad during the Winter '09 term at Ryerson.

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Chapter 5_Solutions - Suggested Solutions to Assigned...

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