Qualitative characteristics of useful financial information The qualitative characteristics of useful financial reporting identify the types of information are likely to be most useful to users in making decisions about the reporting entity on the basis of information in its financial report.
Thus, the financial statements presume that an entity will continue in operation indefinitely or, if that presumption is not valid, disclosure and a different basis of reporting are required. The IASB will consider whether different sizes of entities and other factors justify different reporting requirements in certain situations.
However, these are not considered a primary user and general purpose financial reports are not primarily directed to regulators or other parties.
They will need to consider pertinent information from other sources as well. Information about the claims and payment requirements assists users to predict how future cash flows will be distributed among those with a claim on the reporting entity.
A reporting entity is not necessarily a legal entity.
The predictive value and confirmatory value of financial information are interrelated. While some phenomena are inherently complex and cannot be made easy to understand, to exclude such information would make financial reports incomplete and potentially misleading.
The IASB assesses costs and benefits in relation to financial reporting generally, and not solely in relation to individual reporting entities. These broad classes are termed the elements of financial statements. Financial reports are prepared for users who have a reasonable knowledge of business and economic activities and who review and analyse the information with diligence.
To be useful, financial information must not only be relevant, it must also represent faithfully the phenomena it purports to represent. The elements directly related to financial position balance sheet are: Comparability enables users to identify and understand similarities in, and differences among, items.
The qualitative characteristics apply equally to financial information in general purpose financial reports as well as to financial information provided in other ways.
It can be a single entity or a portion of an entity or can comprise more than one entity. As the project to revise the Framework progresses, relevant paragraphs in Chapter 4 will be deleted and replaced by new Chapters in the IFRS Framework.
Faithful representation means representation of the substance of an economic phenomenon instead of representation of its legal form only.
Financial information is capable of making a difference in decisions if it has predictive value, confirmatory value, or both. The usefulness of financial information is enhanced if it is comparable, verifiable, timely and understandable. Verifiability means that different knowledgeable and independent observers could reach consensus, although not necessarily complete agreement, that a particular depiction is a faithful representation.
However, enhancing qualitative characteristics either individually or collectively cannot render information useful if that information is irrelevant or not represented faithfully.
Reporting such information imposes costs and those costs should be justified by the benefits of reporting that information.
This information indicates how the entity obtains and spends cash, including information about its borrowing and repayment of debt, cash dividends to shareholders, etc.
Users need to be able to distinguish between both of these changes. Prudence is the exercise of caution when making judgements under conditions of uncertainty.Framework for the Preparation and Presentation of Financial Statements () (IASB Framework ()) initially issued by the International Accounting Standards Committee (IASC) and subsequently adopted by the International Accounting Standards Board (IASB).
Framework for the Preparation and Presentation of Financial Statements Quick Reference A document setting out the basic accounting concepts informing International Accounting Standards and International Financial Reporting Standards.
Special purpose financial reports, for example prospectuses and computations prepared for taxation purposes, are outside the scope of this Framework. However, this framework can be applied in preparation of such special purpose reports where their requirements permit. 1 Framework for Preparation and Presentation of Financial Statements Learning Objectives After studying this chapter, you will be able to: ♦ Understand the meaning and significance of Framework for the Preparation and.
Framework for the Preparation and Presentation of Financial Statements incorporates the Framework for the Preparation and Presentation of Financial Statements as issued by the International Accounting Standards Board (IASB).
Paragraphs that have been added to this Framework. The framework sets out the concepts that shape the preparation and presentation of financial statements for external users.
The framework does not have the status of an accounting standard as also is the case with the 'Statement of Principles' from the UK Accounting Standards Board (ASB).Download