Critical Thinking: Desirable Financial Standards

Critical Thinking Student’s Name Institution Course Date CRITICAL THINKING Every business needs to operate with firm and desirable financial standards. The establishment of such standards has a great impact on the investors, creditors, and regulators who have gained information to make sound economic decisions. Accounting standards allow business owners from all parts of the world to adhere to the same guidelines. They also make it easier for investors and creditors to compare the performance of different countries. As a result, a great deal of uncertainty is eliminated when it comes to making the final decision. Accounting standards guide today’s capital markets. These rules govern the formation of corporate financial statements. The establishment of financial accounting standard board in a company is the best accounting system a company could have. Accounting standards ensure that financial information is presented to the policymakers for better decision making. Question A: The financial statement must provide a neutral scorecard of the effects of transaction" comment The information that is found in the financial statement should be free from bias. Financial statements should also reflect a balanced view of the company’s affairs. Neutrality and lack of bias assist the management to measure the performance of value of an organization. Additionally, a neutral scorecard ensures that a comparison is made between the interest of the public and measure of value with the use of neutral accounting standards (Healy, & Wahlen, 1999). Neutral scorecards also ensure that financial statements are correct. Creditors, regulators, and investors use financial reports to make economic and business decisions based on the information that is found in the financial statements. Financial statements are supposed to be neutral. This enhances their usefulness when reporting any economic activities. Further, they are not supposed to favor any party over the other. However, information can be biased deliberately or systematically. Deliberate bias causes the management to misstate financial statements intentionally (Mulford, & Comiskey, 2011). System bias is where accounting systems tend to favor one outcome over the other. Neutral scorecard affects business transactions in every organization. Question 2: "cost of transaction exists whether or not the FASB mandate their recognition in financial statements" comment. The argument of this statement is based on withholding some information from the investors who need to make decisions based on the credibility of the financial reports (Healy, & Wahlen, 1999). The credibility of financial information is very important because it ensures that the economy is functioning well. It...