In Topic 4, you will complete your examination of the financial reporting concepts necessary to achieve financial reporting literacy. Recall from Topic 3 that this competency is necessary to being an effective manager of a businessâ€™ marketing, operations or other functions. Your goal in completing Topics 3 and 4 of this course is to build on your foundational accounting skills to acquire this literacy. Recall, too, that financial reporting literacy means that a manager is able to interpretgeneral-purpose financial statements in connection to making business decisions, including those related to a businessâ€™ strategy, operations, investments, and finances. In making such business decisions, managers who have financial reporting literacy understand:
- The limitations on the usefulness of financial statements resulting from trade-offs made necessary by the present accounting model, political influences, and the need for managementâ€™s judgment.
- The importance of earnings quality to the usefulness of financial statements and how earnings management affects this quality.
- The ethical dimensions of financial reporting policies and practices, including managementâ€™s incentives to engage in earnings management.