The Financial Accounting and Standards Board, FASB is an organization that sets down the accounting rules and guidelines that makeup Generally Accepted Accounting Principle, GAAP. The FASB developed the Statements of Financial Accounting Concepts, SFAC, to guide the Board in setting up standards in order to better understand accounting issues. SFAC No.1 explains the primary objectives in financial reporting. The primary objectives of financial reporting are to provide useful information to the people reviewing the financial report. The people reviewing the financial report should get clear understanding of the public company and see whether or not the business is generating profit. The information given entails future earnings of the public company. It explains that by providing the balance sheet, income statement and statement of cash flow. The people who view the financial statements are investors, market analysis, creditors and auditors. With the information provided in the financial report, they are able to see how the business is being managed and how the management has been useful to the company. It is implicated for the needs of the users, like investors, creditors. SAFC No. 2 explains the qualitative characteristics that are considered useful and understanding in the report for the users. The Primary decision-making qualities are Relevance and Reliability. The qualities within Relevance are the predictive value, feedback value and materiality. For Reliability the characteristics are Verifiability, neutrality, and representational faithfulness. Comparability including consistency is a secondary quality that relates to Relevance and reliability, finalizing with materiality.
When deciding what to put in the Accounting report one must have relevance....