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Accounting Theory: Firms Disclosure of Information - Essay Example

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The investor confidence can be won by disclosing the information about the company in public. The information should be accurate and properly audited by the auditors. There are various accounting theories which are stated by the researchers. This paper is an attempt to analyze the reason of disclosing various type of information by the firm using the variety of accounting theories. Accounting Theories and Assumptions There are certain accounting assumptions which are the basic postulates of accounting means they are the base of accounting. The accountants face some difficulties when they are recording the business transactions. So the basic assumptions are made which are based on the experience. These accounting assumptions are the basis of the accounting theories. These are as follows. Business Entity Concept: This is the most basic concept of accounting. According to the concept the organization and the owners are two separate entities. If the business transaction also records the transactions of the individuals then the financial statements would not be accurate as the same transaction is recorded for the business and the owner’s personal account. The business entity concept is necessary to implied by the accountants to measure that what information is relevant to the business and which are not. But the entity concept is not so useful when the matter of valuation of entities and disclosure are concerned. Going Concern Concept: According to the going concern concept the accountants prepare the financial statements assuming that the business is not going to broke down or liquidate. The directors of the company should assess the information about the company and then make the disclosures clearly about the financial statements’ going concern. But the criticism of going concern arises when the uncertainty of the events related to the business is concerned, the doubts are there if the business would survive in a situation or not. Conservatism Concept: The conservatism concept leads accountants to anticipate losses or lesser value of assets. There are two alternatives which can be followed by the accountants. The accountants who follow the concept choose the conservative one between the two. The potential losses from the business are disclosed according to the concept, not the potential gains. Revenue Recognition Principle: The revenue recognition principle leads the accountants to identify the situations in which the income would be realized as revenue. The revenue can be recognized before or after cash is received depending on the policies followed by the concerned company’s accountants, and thus the disclosure of profit and loss in the financial statements are made. Full Disclosure Principle: The companies are bound to disclose the information important for the outside stakeholders in the footnote of the financial statements. The footnotes of the statements also include the information about the probable costs associated with the business. In the financial accounting practice some assumptions, frameworks and methodologies are needed which is called as accounting theory. The accounting theories are based on some basic assumptions which are discussed earlier. The accounting theories are known as the guide of accounting practices. Three disciplines are known as the roots of the accounting theories. Decision theory: The decision theory refers that how to make a decision. For taking a decision the accountants take the different alternatives in consideration. After considering the different alternatives and measuring their outcomes the management take the decisions about the future pathway. Measurement Theory: It means that the related ...Show more
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For sustaining in a market a firm need invest from the investors which they can get by winning the confidence of the investors. The investor confidence can be won by disclosing the information about the company in public…
Accounting Theory: Firms Disclosure of Information
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