The primary aim of financial reporting is to provide customers with information and advice. People will look to financial reports when considering what kinds of investments to make and decisions regarding their credit and their financial situation in the future. It is not possible to know what the future holds but it is possible to use educated predictions and base these predictions on assumptions from your knowledge of the financial industry.
The basic assumptions in which should be considered in financial reporting are:
Cost-benefit analysis must take place before the report is constructed to ensure it is a worthwhile task. This can at times be difficult as it may be hard, if not impossible, to measure the costs and the benefits prior to the work beginning and this can be a constraint in financial reporting.
Materiality is another constraint which should be considered. A report is thought to be 'material' if it can make a difference to the company. If it is believed that it can make a difference then cost-benefit relationship often becomes worthwhile.
The basic assumptions in which should be considered in financial reporting are:
- Monetary unit
- Going concern
- Periodicity
- Economic entity
Cost-benefit analysis must take place before the report is constructed to ensure it is a worthwhile task. This can at times be difficult as it may be hard, if not impossible, to measure the costs and the benefits prior to the work beginning and this can be a constraint in financial reporting.
Materiality is another constraint which should be considered. A report is thought to be 'material' if it can make a difference to the company. If it is believed that it can make a difference then cost-benefit relationship often becomes worthwhile.