Wednesday, 24 August 2016

The qualitative characteristics needed when preparing a financial statement

Hello readers, so really you have an accountant that helps you with the preparation of your financial statements, however the financial statements of your company are also your responsibility. Today I will be telling you about 6 characteristics needed when it comes to preparing the financial statements. We have the fundamental qualitative characteristic and the enhancing qualitative characteristics. The fundamental qualities are the main ones while the enhancing qualities enhances the main ones. Here they are:

Fundamental Qualitative Characteristics

Relevance
A financial statement should be prepared in such a way that it will meet the decision making needs of its users. The financial statement should also be prepared in such a way that it will correct any wrong information that has been provided in the previous statement. An information is said to be relevant if the omission and misrepresentation of it will affect the decisions of its users.

Faithful Represention
The financial statement must represent what it purports to represent. The statement must be true and fair. As such the financial statement must be free from material errors, free from bias and be complete.

Enhancing Qualitative Characteristics

Verifiability
When a financial statement can be confirmed then it is verifiable. This help users believe it is reliable and credible. When users of the financial statement can depend on it, then the financial statement is said to be reliable. Thus, it must be complete, it must be accurate meaning free from errors. It must also be free from bias, meaning it must be neutral.

Comparability
The financial statement must be prepared in a way that it can be compared with previous financial statement of the company. It must also be prepared in such a way that it  can be compared with financial statements of other organisations so that users can make effective decisions.

Understandability
A financial statement is said to be understandable when users who have a reasonable knowledge of activities carried out in terms of business and economics can interpret the financial statements.

Timeliness
There is a saying "it is better late than never". Yes, it is better late than never in some situations. However, for the financial statements it must be timely. When the financial statement is published on time it helps you influence the decision of its users.

Thank you for reading this article. Keep checking out my blog regularly. Cheers!

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