Reporting requires systems, staff time, review, and sometimes external audit work. Readers also spend time finding and interpreting information. Benefits can extend to many investors and creditors, not only the company that pays to prepare the report.
Standard setters consider these costs and benefits when developing reporting requirements. A company cannot disregard an applicable requirement simply because collecting the data is inconvenient.
Compare ways to satisfy the requirement
Suppose a manufacturer needs reliable warranty records. It can compare the costs of improving its existing system with replacing it. The alternatives should be assessed against the records, calculations, and review work the company actually needs for its reporting.
A lower-cost approach can be appropriate if it satisfies the requirements. An approach that leaves out necessary information is not equivalent merely because it is cheaper.
Some accounting guidance permits simplified approaches under specified conditions. Establish whether such an option applies before using it. The cost constraint itself is not permission to invent a reporting exception.
Put the concept to work
Understand this concept
- Identify costs of preparing, checking, and using financial information, and explain why cost alone does not excuse noncompliance with accounting requirements.
Analyze this concept
- Compare the benefits and costs of reporting alternatives, including who uses and pays for the information and which requirements apply.
Learning resources
Choose a lesson, try an application, or inspect the sources behind this concept.
Build on these ideas
- Cost constraint on financial reporting — Understand
To analyze this concept: Required. A tradeoff analysis must recognize costs borne beyond the preparer.
- Decision usefulness — Understand
To understand this concept: Required. Costs are evaluated against the reporting benefits information can provide.
Lessons
Worked examples and cases
Practice
Common mistaken ideas
Sources
Related concepts
Use this idea next
- Cost constraint on financial reporting — Analyze
Required level here: understand. Required. A tradeoff analysis must recognize costs borne beyond the preparer.
Used in these readings
These chapters explain or apply this concept. The label states how the chapter uses it.