Answer
Economic consequences means the impact of accounting reports on the wealth positions of issuers and users of financial information and the decision-making behavior resulting from that impact. In other words, accounting information impacts various users in many different ways, which leads to wealth transfers among these various groups.
Work Step by Step
If politics plays an important role in the development of accounting standards, standards will be subject to manipulation for the purpose of furthering whatever policy prevails at the moment. No matter how well intentioned the standards setter may be, if information is designed to indicate that investing in a particular enterprise involves less risk than it actually does, or is designed to encourage investment in a particular segment of the economy, financial reporting will suffer an irreplaceable loss of credibility.
