Accounting Qualitative Characteristics

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Accounting Qualitative Characteristics
2012-05-09 04:41:28

Terms out of theory exam
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  1. Defintion Of Comparability
    Users must be able to compare similarities and differences in the financial statements of an entity through time as well as comparisons with statements from a different entity
  2. Explanation Of Comparability
    The measurement and reporting of transactions and events remain conistent over time and between entities. Any changes to the measurement and reporting of an item needs to be mentioned in the statements(accounting policies). eg if you change from stright line depreciation to the units of use method. Statements should show corresponding information for the preceding periods. eg net profit figure for 2007 plus net profit figure for 2006
  3. Definition of Understandability
    An essential quality of the information provided in financial statements is that it is readily understandable by users. For this purpose users are assumed to have a reasonable knowledge of accounting and are willing to study the information.
  4. Explanation Of Understanability
    Complex matters that are relevent to the economic decision making needs of usersshould not be excluded on the grounds that it may be to difficult for certain users to understand.
  5. Definition Of Reliability
    To be useful information must be reliable. Information has the quality of reliability when it is free from undue error and bias and represents faithfully transactions and events.
  6. Definition Of Faithful Representation
    To be reliable, information must represent faithfully the transactions and other events it either purports(states) to represent or could be expected to represent. (source documents prove faithful representation)
  7. Explanation Of Faithful Represenation
    Thus for example a balance sheet should represent faithfully the transactions and other events that results in assets, liabilities and equity of the entity at the reporting date which will meet the recognition criteria
  8. Definition Of Relevence
    Information has the quality of relevance when it influences the economic decisions of users by helping them evaluate past, present or future events or confirming, or correcting, their past evaluations.