Qualitative Characteristics Of Financial Information Essay

1194 words - 5 pages

Financial information disclosed in the general purpose external financial reports provide useful information to the users, both internal and external, for making and evaluating decisions on the allocation of scarce resources. Therefore, it requires that the information should contain certain attributes which assure the objectives of GPFR can be achieved. This essay will examine these attributes which called qualitative characteristics of financial information in four aspects, relevance, reliability and comparability, understandability.RelevanceInformation can be seen as possessing relevance quality when it can influence the decision making by users of the statements. Relevant information should possess two basic values, predictive value and feedback value. Hoggett et al (2009) describe this as "Predictive value means value as an input into a predictive process, not value directly as a prediction. It is the quality of information that helps users to increase the likelihood of correctly forecasting the outcomes of past or present events."(p448) That is to say, relevant information assist users to form predictions about the outcomes of past, present or future events. On the other hand, feedback value means the relevant information is able to help decision makers evaluate past decisions and may confirm whether a precious decision was right and then correct the mistake if find any.A consideration of materiality needs to be made in order for information to be relevant. Hoggett et al (2009) points out "Information is material if its omission or misstatement has the potential to adversely affect the economic decisions made by users of a particular set of general purpose financial reports, or the rendering of accountability by preparers."(P448) In addition, for one matter, companies in different scale and position see materiality hardly the same. For instance, the information of a $10000 bad debt may not be important for a multimillion-dollar company, however, it may be important for a small business. Thus, when making financial statement, accountants make judgments depending on their own knowledge of the company and the experience.ReliabilityThe Framework (2004) suggests that information has the quality of reliability when it is free from material error and bias and can be depended upon by users to represent faithfully that which it either purports to represent or could reasonably be expected to represent. The reliability of financial information will be determined by the degree of correspondence between what that information conveys to users and the underlying transactions and events that have occurred and been measured and displayed.As mentioned by Hoggett et al (2009), minimum criteria need to be met before assets, liability, income and expenses can be recognized in financial statement. It is important to apply the criteria to measure the reliability. Without the measurement, information cannot be recognized as faithful representation of the...

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