College 2 - Conservatism

the single objective of financial reporting is providing useful information for valuation decisions

Qualitative characteristics serve to operationalise this objective

introducing concepts which standard-setters can employ as arguments in the development of new or revised standards

Ex-Ante (vooraf) role of accounting information

Evaluate the return potential of investment opportunities

Evaluate the managers to monitor the use of invested capital

Ex-Post role of accounting information

the boundaries of what the standard-setters deem ‘‘appropriate’’ financial reporting

procedures to facilitate completion of a particular task

Information is capable of making a difference in the decisions made by capital providers

the recurrent use of qualitative characteristics in the framing of accounting problems by standard-setters, practitioners and academics

Mindsets consist of a collection of judgment criteria and cognitive processes and procedures to facilitate completion of a particular task

the boundaries of what the standard-setters deem ‘‘appropriate’’ financial reporting

Information is capable of making a difference in the decisions made by capital providers

Predictive and/or confirmatory value

Capable of making a difference whether the users use it or not

Only material information is useful

Materiality: omission or misstatement would influence the decisions of the users

Depiction of an economic phenomenon is complete, neutral and free from material error!

Complete if depiction includes all information necessary

Depiction of an economic phenomenon is complete, neutral and free from material error!

Complete if depiction includes all information necessary

Neutral if there is absence of bias to attain a predetermined result

Disclose information about the degree of uncertainty that could lead to material errors

Information shall be understandable

Assume that user has reasonable knowledge

Not an excuse not to report on complex issues

Information shall be understandable

Assume that user has reasonable knowledge

Not an excuse not to report on complex issues

Information is available to decision makers before it loses its capacity to influence decisions

do not equalize differences!

Information is available to decision makers

Information is available to decision makers before it loses its capacity to influence decisions

It is achieved if different independent observers could reach the same conclusions about the respective economic phenomena

Comparisons of different companies

Quality of information that helps assure users that information faithfully represents the economic phenomena (werkelijkheid).

It is achieved if different independent observers could reach the same conclusions about the respective economic phenomena

Comparisons over time

Comparisons of different companies

But: do not equalize differences

Assume that user has reasonable knowledge

Not an excuse not to report on complex issues

Ex-Post (achteraf) role of accounting information

Ex-Ante role of accounting information

Subset of decision usefulness

Evaluate the managers to monitor the use of invested capital