Finally, verifiability is silent on the interpretation of accounting results. It is help to achieve comparability. The cost of providing financial information should not exceed related benefits unless there is a statutory requirement to disclose the information. the qualitative characteristics of financial reporting and non- financial business per formance via a moderating role of the organizational demographic characteristics (type, size and experience) in a Qualitative Characteristics of financial statements include: Relevance: The accounting information provided is useful to stakeholders. Qualitative Characteristics of Financial Statements Enhancing Characteristics from CBA 2012-11569 at Lyceum of the Philippines University - Cavite - General Trias, Cavite The Enhancing Qualitative Characteristics are divided into 4 attributes. Required fields are marked *. Neutrality: Depiction is without bias in the selection or presentation of Financial information uust not be manipulated in any way in order to influence the decision of users. For example: income is compared for the years 2014, 2015, and 2016. The objective was to demonstrate how the qualitative characteristics, as defined by the IASB can be operationalised. They can compare the trade receivables in current year to those last year. The two fundamental Qualitative characteristics are : Relevance: In accounting, the term relevance means it will make a difference to a decision maker. Verifiability. Relevant information is capable of making a difference in the decisions made by users. However, the ability to make predictions form financial statements is enhanced by the manner in which the information on the past is presented. Enhancing qualitative characteristics include comparability, verifiability, timeliness and understandability. According to BDO (2010), the qualitative characteristics of useful financial information apply to financial information In order to have relevance, accounting information must be timely. Describe what you understand by the above statement and explain briefly the qualitative characteristics. It is one of the main reasons why accountants are often described as conservative, prudent, cautious, and pessimistic and so on. Three attributes of Faithful Representation include: Understandability includes users’ abilities and aggregation and classification. For Analytical purposes, Qualitative characteristics can be differentiated into Fundamental and Enhancing qualitative characteristics. Verifiability doesn't have to do with determining the truthfulness of the data a company provides, but rather with making sure its results logically flow from the data. It means that what is material to one entity may not be material to another. mea­sure­ment. Adequate disclosure implies that information influencing the decision of users should be disclosed in details and should make sense. The timeliness of accounting information refers to the provision of information to users quickly enough for them to take action. Prudence is deeply embedded in accounting and possibly even in the personality of many accountants. (3) The Framework deals with the objectives of financial statements. Users must be able to distinguish between different accounting policies in order to be able to make a valid comparison of similar items in the accounts of different entities. Understandability 4. Comparability is including consistency and disclosure. That is why the FASB created the qualitative characteristics of financial information. Therefore, financial statements should include the current year statements, the comprehensive income statement and statement of financial position, presented beside the prior year statements and it is also called as comparatives. The financial statement should contain information “sufficient in quantity and quality to satisfy the reasonable expectations of the readers to whom it is addressed”. According to the framework, qualitative characteristics are the attributes that make the information provided in financial statement useful to users. Qualitative analysis deals with intangible and inexact information that can be difficult to … Verifiability helps assure that Information faithfully represents the economic phenomena it purports to represent. It is relative. Besides that, those preparing financial statements are entitled to assume that users have a reasonable knowledge of business, economic activities and accounting and a willingness to study with reasonable diligence the information provided. Your email address will not be published. The four characteristics are understandability, relevance, reliability, and comparability. Preparers of financial information must achieve to maximum enhancing qualitative characteristics. Constraints on the qualitative characteristics 3.33 - 3.37 In deciding which information to include in financial statements, when to include it and how to present it, the aim is to ensure that financial statements yield information that is useful. Next, Reliability is including faithful representation, being natural, free form material error, complete, and prudent. The financial information in the financial reports should represent what it purports to represent. For example, in the decision to replace an equipment that has been used for the past six years, the original cost of the equipment does not have relevance. How we achieve the quality information? Reliability is to be useful, information must also be reliable. Financial statements are quantitative statements, based on numbers. Free from error: means there are no errors and inaccuracies in the description of the phenomenon and no errors made in the process by which the financial information was produced. What will have relevance are the future amounts, such as the cost of the new equipment, and the savings that will occur when the old equipment is replaced. 2. Enhancing Qualitative Characteristics distinguish more useful information from less useful information. Confirmatory value enables users to check and confirm earlier predictions or evaluations. Verifiability isn't about determining whether the assumptions a company makes are correct. The crux of prudence is prepares of accounting information should exercise prudent views when making judgments about uncertain items such as provisions for doubtful debts, asset lives or the number of warranty claims that might occur. First, understandability is including taking into consideration users’ abilities, and aggregation and classification of information. Businessmen and women along with investors and credits should however clearly understand the information presented in the financial statements. Predictive value helps users in predicting or anticipating future outcomes. pre­sen­ta­tion and dis­clo­sure. Therefore, a diligent user can determine changes in the performance and financial position of the entity that resulted from normal activities that are expected to continue into the future. To be able to view similarity prepared financial statements over time allows users to make judgments about trends in performance and in changes in financial position and use this information to predict into the future. That does not mean no inaccuracies can arise, particularly in case of making estimates. The four characteristics are understandability, relevance, reliability, and comparability. So it is... Relevance:. 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