economic consequences of an accounting rule. This can serve to highlight the decision-making
behavior that may result from the impact of accounting reports on the wealth positions of issuers
and users of the financial information.
LO: 1.4
Bloom: C
Difficulty: Medium
Min: 5-10
AACSB: Communication
AICPA BB: Strategic/Critical Thinking
AICPA FN: Measurement
AICPA PC: Communication
IMA: None
Ex. 1-81—Decision usefulness
test bank for Intermediate Accounting: IFRS Edition,4e
1 - 34
Investors are interested in financial reporting because it provides information that is useful for
making decisions. Explain how the decision-usefulness approach helps investors.
Solution 1-81
When making decisions, investors are interested in assessing (1) the company’s ability to
generate net cash inflows and (2) management’s ability to protect and enhance the capital
providers’ investments. Financial reporting should therefore help investors assess the amounts,
timing, and uncertainty of prospective cash inflows from dividends or interest, and the proceeds
from the sale, redemption, or maturity of securities or loans. For investors to make these
assessments, the economic resources of an enterprise, the claims to those resources, and the
changes in them must be understood. Financial statements and related explanations should be a
primary source for determining this information.
LO: 1.2
Bloom: C
Difficulty: Medium
Min: 10-15
AACSB: Communication
AICPA BB: Strategic/Critical Thinking
AICPA FN: Measurement
AICPA PC: Communication
IMA: None