As the senior accountant of an asset management firm you have been approached by Caleb an intern in your company, to get some advice regarding the usefulness of financial statements.
Caleb found the following information when reading through an accounting textbook “Because the Management Discussion and Analysis section provides insight into the company from the manager’s point of view, financial statement users should read it carefully to obtain all of the information available” (Wahlen et al 1st edition p:30). However Caleb also came across research that shows that investors place more value on the numerical section of the financial statements than on management reports. See Abraham et al 2012, https://www.icas.com/__data/assets/pdf_file/0006/7647/43-Risk-Reporting-Clairty-Relevance-Location-ICAS.pdf, Table 2 on p.35 as one example. Caleb is confused and is not sure whether he should only focus on the financial statements and/or the Management Discussion and Analysis section of the annual report for his investment reports. Discuss what advice you would provide Caleb on the advantages and disadvantages of relying on the Management Discussion and Analysis section of the annual report.
Caleb also wants to know whether accounting information matters to the outside world and in particular whether financial reporting has economic consequences. Discuss how you would respond to Caleb using evidence on the economic consequences of financial reporting.
•Wahlen, J. M., Jones, J. P., & Pagach, D. P. (2013). Intermediate accounting: Reporting. (1st ed.). Cengage Learning.
•Chapter 1: The Demand for and Supply of Financial Accounting Information
•Online Writing Lab from the Internet (APA Style):
•American Psychological Association. (n.d.). APA Style. Retrieved from https://www.apastyle.org/
•Angeli, E., Wagner, J., Lawrick, E., Moore, K., Anderson, M., Soderlund, L., & Brizee, A. (2010, May 5). General format. Online Writing Lab. Retrieved fromhttps://owl.english.purdue.edu/owl/resource/560/01/
In addition to your textbook, please use the EC Library for more information on the discussion topics. Provide appropriate APA in-text citations and references.
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