Allocating resources in the most efficient manner maximizes the wealth of any country. It is generally acknowledged that financial information plays an important role in efficient resource allocation.

Required:

Given that both of the preceding statements are correct, why are the financial reporting rules in some countries (e.g., Canada and the United States) designed to be very helpful to external investors whereas in other countries (e.g., Germany and Japan) they are intended to be less helpful?

Q4

You have decided to buy a new automobile and have been gathering information about the purchase price. The manufacturer’s Web site shows a “list price” of $24,500, which includes your preferred options: leather trim and CD player. You have also consulted the “Blue Book” guide to car prices and found that the average price paid for a similar new vehicle is $19,500. However, the guide also indicates that recent selling prices have ranged from $18,000 up to $22,000.

Required:

1. Which price quote, the “list price” or the “Blue Book” average price, is the more relevant for your decision? Why?

2. Which price quote is more representationally faithful? Why?