ACTG 2010 Lecture 3: ACTG2010 - Chapter 4
Document Summary
Income measurement and the objectives of financial reporting. No, it"s rarely possible for one set of financial statements to satisfy all objectives of financial reporting, since most companies have many objectives, some of which that are contradictory. The pursuit of tax minimization, which is of some importance to all companies, necessarily sacrifices most other objectives, particularly the evaluation of management performance, income maximization, or income smoothing, which usually are important for a publicly traded company. For private companies higher net income might be desirable if financial statements have to be provided to bankers whereas minimizing taxes would be served by legitimately reporting a lower net income. There is no most important objective of financial reporting. This question must be assessed in the context of each individual entity. For a small private company with few external stakeholders demanding information therefore income tax minimization is probably the most important objective.