Question

The extent to which financial statements accurately reflect the consequences of managers' operating, investing, and financing decisions is a function of characteristics of the accounting environment and managers' accounting strategy. This statement is:

Answer 1

The accuracy of financial statements is influenced by characteristics of the accounting environment and managers' accounting strategy. When a firm's strategy leads to potential profits, outside investors are more willing to provide financial capital due to improved access to information about the firm's performance.

Step-by-step explanation:

The statement presented in the question is discussing the extent to which financial statements accurately reflect the consequences of managers' operating, investing, and financing decisions. The accuracy of financial statements depends on characteristics of the accounting environment and managers' accounting strategy. When a firm becomes established and its strategy is likely to lead to profits, outside investors like bondholders and shareholders are more willing to provide financial capital to the firm because they have access to more information about the firm's products, revenues, costs, and profits.