Essay: Decision Usefulness Theory of Accounting

Sample Essay

The decision usefulness theory of accounting explains the relationship between useful decisions and accounting principles and concepts. This theory explains how useful decisions are made using proper judgment (Stamp, Mumford and Peasnell 1993).

The convergence of accounting standards is a key factor when investors need to make decisions regarding international companies where financial statements are prepared using either IASB or FASB. The values estimated by applying fair value accounting are also linked to this theory as estimated values would be used in making informed decisions. The measurement approaches theory in accounting relates to hypothetical and actual measurement techniques applied to accounting functions (Folmer and Tietenberg 2001). The measurement of assets and liabilities under fair value accounting is based on hypothetical estimates which may vary from time to time and situation to situation. The standard setting bodies need to form a comprehensive guideline for estimating values in fair value accounting.

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