Qualitative Characteristics of Financial Information Table of Contents Table of Contents 2 Introduction 3 Qualitative Characteristics of Financial Information 3 Materiality 5 Prudence & Neutrality 7 Relevance & Reliability 7 Conclusion 9 References 11 Appendices 13 Introduction This essay aims to present an analysis of the qualitative characteristics of the financial information and the major constraints presented by these characteristics…
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The information is not just useful for the capital providers but also to the other user groups such as government, regulatory bodies etc. The next level of conceptual framework is the fundamental concepts i.e. qualitative characteristics of financial information and elements of financial statements. The third level is the implementation level, which contains recognition, disclosure and measurement concepts through principles, assumptions and constraints (Appendix 1). The qualitative characteristics of financial information are an important part of the total conceptual framework because they act as a bridge between the first level and third level of the framework. However, the definition of quality threshold of materiality and the conflicts between prudence and neutrality, and relevance and reliability has always been debated. In addition to the discussion of these constraints, this essay presents the Conceptual Framework for Financial Reporting 2010 provided by IASB as to how the new framework has placed these characteristics. ...
The Conceptual Framework for Financial Reporting 2010 or commonly referred to as Framework 2010 states the objective of financial reporting that is to provide the financial information related to the reporting entity that can be helpful to investors and creditors in making appropriate decisions (McConnell, 2011). Therefore, in order for the financial information to be useful, it must possess some characteristics such as materiality, prudence, neutrality, relevance and reliability. An information is considered material if its misstatement, modification or omission can influence the economic decisions of the users, taken on the basis of that information. Materiality depends on the magnitude of the error in circumstances when the misstatement or omission has taken place. The financial statements are prepared in an uncertain environment due to many events such as useful life of fixed assets, collectability of doubtful receivables, and warranty claims. These uncertainties are recognized by exercising prudence while preparing the financial statements. Prudence means making careful judgement in making estimates in the uncertain conditions, so that the income or assets are not overstated and expenses or liabilities are not understated (IASC Foundation and IASB, 2008, p.25). Neutrality means that the financial information should be free from any bias and does not influence decision making in order to achieve predetermined outcome. Financial information is useful if it has the quality of influencing decisions by helping the users in evaluation of past, future and present events related to the reporting entity. The past information regarding the financial position and performance is frequently used for predicting the future performance and position. Information is
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“Qualitative Characteristics of Financial Information Essay”, n.d. https://studentshare.org/finance-accounting/1442516-accounting-coursework.
This study aims to evaluate and present several qualitative characteristics that financial information must incorporate in order to meet the needs of users of financial statements. Materiality is one of the qualitative characteristics. Prudence is another qualitative characteristic. Relevance is an important qualitative characteristic. Reliability is a necessary qualitative characteristic.
If a company complies with the international accounting standard, it will likely achieve a faithful representation of its financial performance; as well as it will provide the basis for analysis of the company’s position on the global market and further prospects for development of its business.
rs of the business entity about its financial information. The financial reports prepared in accordance with the accounting procedures followed can be used both internally within the business entity as well as externally. The former is known as management accounting and the later as financial accounting or reporting.
It shows the financial state of a company and helps in giving a clear picture of its financial affairs. There are many external users of financial statements of a company but the company itself can also use financial statements to judge and compare its own performance against the performance of other like companies.
The report helps in assessing the amounts, timing, and uncertainty of prospective cash receipts from dividends or interest and the proceeds from the sale, redemption, or maturity of securities or loans. The prospects for those cash receipts are affected by an enterprise's ability to generate enough cash to meet its obligations when due and its other cash operating needs, to reinvest in operations, and to pay cash dividends and may also be affected by perceptions of investors and creditors generally about that ability, which affect market prices of the enterprise's securities.
The role of book values of companies is losing its importance as it tend to be usually lower than market value. The approach taken for accounting is past-oriented from the market value which denotes mostly the companies earnings and hence the difference. This occurs because for evaluation of the real value of a company it takes into consideration its earnings measured in money as well as other intangible and tangible assets etc., also unlike the market valuation.
Some express comfort knowing that the theories have evolved from a systemic line of problem solving since the early 1800's, while others embrace the fact that scientific method and practical application has played a huge role in developing a more consistent baseline in latter years.
Financial accounting information provides the basis on which managerial decision making is carried out. Hence, a company requires financial accounting data well before the management reports can be produced. However, the costing data and the related controls
his part will describes the alternative methods by which assets and liabilities could be measured, and critically assesses the performance of each method against the Qualitative Characteristics of financial information described in the ASB’s Statement of Principles (the
Convergence of accounting standards can provide investors a uniformed set of information to evaluate the information across the different regions and make better economic decisions.
It is also however, important to understand that
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