How "Cost benefit Principle" applies in providing information in the Financial Statements?

Investors and creditors would like to know every piece of information about a company's future sustainability, this level of disclosure can place financial burden on the company.  Provided the company adheres to International Financial Reporting Standard, and where there is departure from a specific IAS standard, the this should be disclosed and quantified if possible, or reasons for the departure from the IAS.

An example is Investment Property IAS40 require that if Investment property is at fair value, that property should be valued by independent professional valuator; this is a big expense.  If the company are experts in property development and valuation themselves, then the directors valuation, and methodology can be sufficient to justify the directors estimate.  The professional valuation may be obtained at greater intervals between independent professional's services being obtained.  

 If I understand your question about the cost of the financial statements,the

application Answer:That most of the items in the financial statements are based

on the principle of the estimated cost and historical cost, except for investment

and cashitem and the itemis reflected in fixed assets

Voted up for imtiazur rehman..............

The cost benefit principle holds that the cost of providing information via the financial statements should not exceed its utility to readers.

This is a significant issue from two perspectives, which are:

§                     Level of detail provided.

§                     Types of information required.

A further consideration is that providing additional information requires more time to produce the financial statements. If an inordinate amount of time passes because of the need to prepare more information, it can be argued that the utility of the resulting financial statements is reduced for readers, since the information is no longer timely.

There are ratios like ROCE, PE, Net profit%, current ratio etc that helps us evaluate current position of company's earnings.

While cost benefit principle is used on several investment proposals / projects and other ways of improving profit, like cost cutting measures, it's purpose is to evaluate every cost cutting measure or project. Because these have pros ans cons in other words impacts, which may improve company profitability or reduce it.

Thus this principle's application can help company improve it's financial statement's picture by going for measures and projects that have been highlighted  profitable by applying cost benefit principle......

P.S This is a very good question and improved my ability to think, even though I am not sure that I have answered correctly.

Thank you for the invitationWith the approval of colleagues

I agree with all the answers

The cost benefit principle or cost benefit relationship states that the cost of providing financial information in the financial statements must not outweigh the benefit of that information to the users. In other words, financial information is not free. Companies spend millions of  every year gathering and organizing financial information to assemble into financial statements.