GAAP requires company to disclose accounting policy in their financial reports. These policies provide relevant information to decision makers on choices taken by executives. Financial statements are the final product of accounting process. Income statement provides data for investment and other decisions. The net income is essentially the common income statement form, consisting of classifications such as income from continuing operations, discontinued operations, extraordinary items, and cumulative effects of changes in accounting principles. In this study we investigate the relative ability of comprehensive income and net income to summarize firm performance. Per statement of financial accounting standards no. 220 (SFAS 220-10-2), if used with related disclosure and other information in the financial statements, the information provided by reporting comprehensive income should assist investors, creditors, and others in assessing an entity’s activities and the timing and magnitude of an entity’s future cash flows.
Accounting policies defined in the literature
Accounting policies are specific policies and procedures used by a company to prepare its financial statements. These include any methods, measurement systems and procedures for presenting disclosures. Accounting policies differ from accounting principles in that the principles are the rules and the policies are a company's way of adhering to the rules. (Investopedia.com)
Disclosure of accounting policies should include accounting principles and methods of application that involve: (1) A selection from generally accepted alternatives;
(2) Those peculiar to the industry or field of endeavor; and (3) Unusual or different applications of generally accepted accounting principles. Examples of disclosures are basis of consolidation, depreciation methods, and inventory pricing. Disclosure of accounting policies assists financial readers in better interpreting a company's financial statements. Thus it results in fair presentation of the financial statements. (Answers.com) FASB topic 105-10-1 objective is to establish the Financial Accounting Standards Board Accounting Standards Codification as the source of authoritative principles and standards recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles (GAAP). (Codification, 2009) The AICPA Council designated Federal Accounting Standards Advisory Board (FASAB) as the body that establishes generally accepted accounting principles (GAAP) for federal reporting entities. As such, the FASAB is responsible for identifying the “GAAP hierarchy” for federal reporting entities. The GAAP hierarchy consists of the sources of accounting principles used in the preparation of financial statements of federal reporting entities that are presented in conformity with GAAP and the framework for selecting those principles. The hierarchy lists the priority sequence of sources that an entity should look to for accounting and reporting guidance and is discussed in SFFAS 34, The Hierarchy of Generally Accepted Accounting Principles for Federal Entities, Including the Application of Standards Issued by the Financial Accounting Standards Board. The sources of accounting principles that are generally accepted are categorized in descending order of authority as follows: a.Officially established accounting principles consist of FASAB Statements of Federal Financial Accounting Standards (Standards) and Interpretations. FASAB Standards and Interpretations will be periodically incorporated in a publication by the FASAB. b.FASAB Technical Bulletins and, if specifically made applicable to federal reporting entities by the AICPA and cleared by the FASAB, AICPA Industry Audit and Accounting Guides. c.Technical Releases of the Accounting and Auditing Policy Committee of the FASAB. d.Implementation guides published by the...