Accounting standard-setters have an expectation that the readers of general purpose financial reports have a ‘reasonable knowledge’ of accounting. Specifically, the IASB Framework states that ‘users are expected to have a reasonable knowledge of business and economic activities and accounting and a willingness to study the information with reasonable diligence’. Hence, there is an expectation that financial statements are not tailored to meet the needs of people who have not, in some way, studied financial accounting. Students should be encouraged to consider whether this expectation is in itself ‘reasonable’.
As Chapter 2 states, there is an expectation held by accounting standard-setters that users of financial statements have a reasonably sound knowledge of financial accounting. For example, within the IASB Framework (which is also the Australian Accounting Standards Board (AASB) Framework) reference is made to users who ‘are expected to have a reasonable knowledge of business and economic activities and accounting and a willingness to study the information with reasonable diligence’. Within the United States Conceptual Framework Project, reference is made to the ‘informed reader’.
Hence, a view has been adopted by the regulators that users of financial statements should have a certain level of knowledge, and when accounting standards are being developed, this level of knowledge is assumed. In defence of this position, we could probably argue that if such an assumption was not made then the development of accounting standards would be much more difficult and time consuming given that the standard-setters would need to consider how uninformed users might react to the particular standards. The position adopted is also consistent with other professions which also typically assume a certain level of expertise when developing guidance for their professions’ members (however, we need to be careful with justifications like this—just because others do a...
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