Got a tricky question? Receive an answer from students like you! Try us!

Relevance and Reliability - Essay Example

Download 1

Summary

In the paper “Relevance and Reliability” gives recommendations regarding financial reporting as one of the most important needs of a company. It helps a company in the evaluation of its own performance and in pin-pointing the specific areas in which it should be working harder…

Extract of sample
Relevance and Reliability

IASB requires that the financial statements must have four qualitative characteristics namely understandability, relevance, reliability and comparability. The attribute of relevance requires that the information provided in the financial statements must be relevant to the needs of the users. Irrelevant information cannot influence the decision making of a user. Paragraph 26 of framework says that the predictive and confirmatory roles of information are interrelated. For instance, information about asset holding enables a user to predict an entity’s ability to capitalize on the opportunities and to cope with adverse situations. For users who had made such predictions in a preceding period, the same information would play a confirmatory role as an entity’s structure and the outcome of previous predictions would be evident. Users use the financial statements to make a lot of predictions and they can make that foresight effectively if the relevant information is disclosed properly. For example, some items of income or expense are not conventionally seen in financial statements as they are unusual. Proper and separate disclosure must be made for such items so that their relevance becomes significant.
For a piece of information to be reliable, it must be material. Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of financial statements. In statistical terms, information is regarded as material if it is more than 5% of the total profits. ...
Download paper

Related Essays

Contribution of relevance and reliability on financial reporting.
Main objective of accounting policy is to produce fair valued accounting information that is highly reliable and relevant to the purpose and objectives of financials statement. Financial statements are the most important components of annual report that all public limited companies publish each year for the stakeholders of the company. The financial statements need to be the fair and ethical representation of financial details of all activities performed by the companies. Financial information is responsible for financial decision making by the investors, creditors, suppliers etc. Most…
14 pages (3514 words)
Discussion Questions and participation questions week 1
The structure of the FASB is independent of other businesses or organizations. The FASB has seven full time employees. Each of them may serve up to two five year terms. Fasb.org (2011). Facts About FASB. Retrieved August 12, 2011 from http:/www.fasb.org/facts/ 2. The accounting profession in the United States would be loss without the existence of the FASB. This organization has been helping accountants decipher the guidelines to apply in their work for over 38 years. You mentioned in your response that the FASB is managed by the Securities and Exchange Commission. For the SEC the FASB…
3 pages (753 words)
Finance Assessed Coursework
ct with each other and how the reporters of financial information struggle to strike a balance among these attributes to ensure the usefulness of information for the user. According to the U.S. GAAP Codification of Accounting Standards, financial statements of an enterprise comprise of profit/loss statements, balance sheets, statement of cash flows and an account of stockholders' equity. These statements, combined with additional financial analysis tools and formulae constitute the financial information which in turn serves the needs of the wide range of users of financial information.
8 pages (2008 words)
Qualitative Characteristics of Financial Information
The information is not just useful for the capital providers but also to the other user groups such as government, regulatory bodies etc. The next level of conceptual framework is the fundamental concepts i.e. qualitative characteristics of financial information and elements of financial statements. The third level is the implementation level, which contains recognition, disclosure and measurement concepts through principles, assumptions and constraints (Appendix 1). The qualitative characteristics of financial information are an important part of the total conceptual framework because they…
8 pages (2008 words)
Financial and Accounting Questions
include a systematic representation of all the financial transactions carried on by an organization. These financial transactions are first identified, recorded and then communicated to the interested users in the form of financial statements. The users can be either internal managers of the organization or the outsiders like the stakeholders of the company (Kimmel, 2011, p.5-6). Out of many uses of these financial statements to its users, decision making is one of its most crucial aspects. Interpretation and financial analysis of these financial statements facilitates decision making process…
6 pages (1506 words)
The Qualitative Characteristics of Relevance and Reliability
IASB has set standards for financial reporting which ensure that the reporting is done according to the set principles by all the companies. This helps the users of financial statements in making crucial economic decisions as there is no ambiguity due to different accounting styles. The standards ensure that a company provides all the relevant information that influences the financial needs of the users. There are specific areas that are not allowed to be left untouched. There is a possibility that some users require non-financial information about a company which is not available in its…
14 pages (3514 words)
Financial Accounting. Relevance and Reliability.
Financial information of any company is presented in financial statements. Financial statements are the main components of company’s annual report. These statements need to have fairly representation of the financial details which is responsible for the decision making process of the investors, suppliers, creditors etc. relevance and reliability are two most important characteristics of financial statements of any organizations. These two factors determine the quality of financial statements. The main purpose of the financial reporting is to provide fairly valued and audited financial…
14 pages (3514 words)