What costs are incurred to create financial statements?
The cost to create financial statements should not be excessive and a burden to the company. For most companies, the only costs the should incur are the accounting ERP system (i.e SAP, QuickBooks, Xero, etc) and a small accounting team. The company should incur enough cost to generate the necessary financial information. If excess costs are incurred to generate additional financial information, that is known as a cost constraint.
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What is a cost constraint?
A cost constraint related to financial reporting is when the cost of obtaining the financial information outweighs the benefit. Under U.S. GAAP, if the cost of obtaining certain financial information is a constraint and results in excessive costs, then the entity is allowed to avoid reporting the financial information.