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QUALITATIVE CHARACTERISTICS OF FINANCIAL STATEMENTS - Coggle Diagram
QUALITATIVE CHARACTERISTICS OF FINANCIAL STATEMENTS
Relevance
Accounting information has relevance if it makes a difference in a decision.
The information has to be timely / has either predictive/ feedback value/both.
Feedback value - confirms or corrects prior expectations
Timeliness - information must be available to decision makers before it loses its capacity to influence their decisions.
Predictive value - helps users forecast future events.
Consistency
A single business may change its accounting methods provided that
it discloses the change ,reasons for the change,effect of the change on income
Exp: straight-line method used for depreciating of assets is applied from year to year.
For a single business, comparability/consistency is enhanced by using the same accounting methods from period to period
The same accounting principles & methods should be used from year to year within a company.
Comparability
This characteristic allows users to analyse 2 or more companies and look for similarities and differences.
Accounting information should be comparable from
business to business,period to period
Accounting information about an enterprise is most useful when it can be compared with accounting information about other enterprises
Reliability
Information be verifiable by people outside the business
Verifiable - the information should be free of error and bias.
Faithful representation - the quality that makes accounting information dependable in representing the events that it purports to represent
Neutrality - the information should be accurate.
Accounting information should be free from significant error&bias
Completeness
To be reliable, information in financial statements must be complete within the bounds of materiality and cost.