Qualitative Characteristics Of Financial Information †Free Samples

Question: Discuss about the Qualitative Characteristics Of Financial Information. Answer: Introduction AASB framework is highly concerned for viability for accounting information as it is used by stakeholders for assisting them in decision-making procedures. This part of the study is based on examination of qualitative characteristics of accounting information by considering appropriate research articles and journals. According to the study of Cordery and Sinclair (2016), qualitative characteristics of accounting information are essential qualities which serve a primary supporting role in the viability of decision in support to particular accounting theory. These characteristics make financial statements useful for users. As per AASB conceptual framework qualitative characteristics of accounting information is as follows The fundamental qualitative characteristic of accounting information is relevance and faithful representation. Both of these qualities are important, if the information is 100% reliable but not relevant, then it will be of no use. On the other hand, accurate information consists less or no value if the same is not reliable (Amendments to the Australian Conceptual Framework, 2013). These qualities are enumerated as below and are inclusive of the elements which will make these qualities more desirable. In addition to two secondary qualities are considers which are comparability and consistency. These characteristics must be steady to each other. The information must be relevant as it helps users to determine the past, current and future capacity of generating income of the business. Relevant information can make significant in the opinion of the user as decision requires either predictive or confirmatory value or both. Relevance also consists a significant element which is timeliness. Information must be provided at the right time to the user to enable its use in the process of decision making (Barker and Penman, 2016). Further, reliability is an amount on which the information is verifiable as it assists in assuring the users that the information shows exactly the economic phenomenon that seeks to represent them. The word objectivity refers to verifiability. Verifiability of accounting information ensures faithful representation of economic phenomena. Accounting information provided statements must be verifiable whether it is by the direct or indirect method. It means information must be supported by reliable evidence and i ndividuals are in a position to cross check that cited information is represented in a faithful manner. This quality takes place when both measure and phenomenon makes an agreement; it claims to be represented. In accordance with the viewpoint of Collier (2015), faithful representation does not refer to complete accuracy of financial aspects but refers that provide information is free from errors and omissions. For example, estimation in disclosure or computation cannot be perfectly accurate, but representation can be faithful if complete information is provided along with the limitation of the estimation process and providing assurance that process is free from error and biases. Although, faithful representation does not necessarily imply useful information. For a better understanding of this aspect, following example can be considered; in the case where estimation is to be made regarding the amount by which carrying amount of assets is required to be adjusted to provide effective on impairment on the value of the asset (Amendments to the Australian Conceptual Framework, 2013). In this case is disclosure of impairment is faithful representation only if the entity has applied an appropriate process in a proper manner by describing the estimates along with the uncertainties associated with it. However, in the presume case if the level of cited uncertainty regarding estimate is satisfactorily large then it will not be particularly useful. It simple words, the relevancy of the asset regarding faithful representation will be questionable. In such situation, if there is no scope of other better alternative representation then cited estimate may work as the superlative available information. Accounting information provided to users must be material to them on the basis of its magnitude or nature. In accordance with the study of, information is considered to be material if its misstatement or omitting can influence the decision of user (Cordery and Sinclair, 2016). Due to this factor, the board cannot determine the quantitative threshold for materiality which is uniform or predetermined as the materiality of information vary to business to business. Along with this, it must be represented faithful, and same can be attained by ensuring that fact is complete, free from error and unbiased. Secondary characteristics of accounting information that is significant for making decisions are comparability, consistency, verifiability, timeliness and understandability. Relating to comparability, it is the concept of applying consistency in practices of accounting among different time periods. Both the predictive and feedback values can be improved if users make a comparison of the companys performance over time. This characteristic makes user capable of determining and understanding similarity and dissimilarity among accounting items. In accordance with the study of Wang (2014), characteristic of comparability is connected with the characteristic of consistency. In this aspect, AASB states that comparability is the goal which is achieved through consistency. Change in any of the policy needs disclosure in the notes to accounts of financial statements to re-establish the comparability in the accounting periods. However, comparability does not refer to uniformity, but it means th e development of standard norms to enhance understanding of user regarding the interpretation of financial statements (Amendments to the Australian Conceptual Framework, 2013). Accounting information is measured to be understandable if it is classified, characterised and presented in an appropriate manner. However, some of the accounting phenomena are inherently complex which is not easy to understand, and exclusion of such facts make interpretation easy (Barker and Penman, 2016). Although exclusion of such facts can mislead users and same is considered to be unethical accounting practice thus it is expected that users must have reasonable knowledge regarding business and economic activities so they can make a viable interpretation. This characteristic also states that information must not be restricted to the interest of average investor or generation users as it must serve the purpose of a broad range of users. For making accounting information more useful, it must include assured qualities and meet the standards. FASB (Financial Accounting Standards Advisory Board) initiates and manages GAAP (generally accepted accounting principles) that set the standards and qualities of the accounting information (irt, Muthusamy and Bir, 2017). Business entities should focus on enhancing qualitative characteristics to the maximum possible extent. Application of these qualitative characteristics is an iterative process which does not comply with the specific procedure as it needs subjective qualification supported by the appropriate disclosure of material facts (Wang, 2014). Conclusion In accordance with this part of the study, it can be concluded that corporate entities are required to prepare financial statements by considering all the qualitative characteristics of accounting information cited by AASB framework to provide assurance that they are free from all material misstatements. Bibliography Amendments to the Australian Conceptual Framework.2013.[Online].Available throughhttps://www.aasb.gov.au/admin/file/content105/c9/AASB_CF_2013-1_12-13.pdf. [Accessed on 31st August 2017]. Barker, R. and Penman, S., 2016. Moving the conceptual framework forward: Accounting for uncertainty.Unpublished paper, Oxford University and Columbia University. Birt, J.L., Muthusamy, K. and Bir, P., 2017. XBRL and the Qualitative Characteristics of Useful Financial Information.Accounting Research Journal,30(1). Collier, P.M., 2015.Accounting for managers: Interpreting accounting information for decision making. John Wiley Sons. Cordery, C.J. and Sinclair, R., 2016. Decision-Usefulness and Stewardship As Conceptual Framework Objectives: Continuing Challenges. Wang, C., 2014. Accounting standards harmonization and financial statement comparability: Evidence from transnational information transfer.Journal of Accounting Research,52(4), pp.955-992. Wang, C., 2014. Accounting standards harmonization and financial statement comparability: Evidence from transnational information transfer.Journal of Accounting Research,52(4), pp.955-992.